Barclays Leaks Cause Concern As Bank CEO Refuses Bonus

Barclays PLC (NYSE:BCS) (LON:BARC), the large U.K. bank, is apparently having problems with data security.  First came news that the island nation’s second-largest bank by assets is investigating the theft of data from 27,000 customers. Then, Barclays announced lower than anticipated profits one day early, as the news may have been leaked to the Financial Times one day prior to the scheduled news release, according to an Investec research note.  The FT claims the information was based on a Morgan Stanley estimate released last Thursday.

Profit decline

Barclays PLC (NYSE:BCS) (LON:BARC) was hit with a steep decline in underlying profits in 2013, falling by 25% to £5.2bn, significantly below 2012 revenue of £7bn and slightly below expectations of £5.41bn.  The trading results were released ahead of its Tuesday scheduled release due to results, published in the Financial Times, being “too close” to the actual results the bank was set to release.  The FT claims the Barclays’ revenue figures were based on estimates published last Thursday by Morgan Stanley.  In early London trading shares of Barclays were up nearly 2%.

In a research note, Investec cautioned against reading too much into the limited profit news.  “We must wait until tomorrow for the detail, though we continue to assume that any marginal disappointment against wider sellside expectations will have come within Barclays Capital where our £11.7bn revenue forecast was fractionally below consensus. It is also likely that Barcap will account for the bulk of what we see as a Q4 cost “overrun” – FY13 underlying group costs are still guided at £18.5bn (excluding £0.2bn IB legal costs disclosed on 29 Jan) – in line with Barclays’ previous target and consistent prior guidance, though worse than what we believe the business could (and should) have delivered.”

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Data breach reveals customer information

The earnings news comes on the heels of investigation, first reported in London’s Daily Mail newspaper, into a potential computer security breach that impacted 27,000 customers. The newspaper, citing a whistleblower, said confidential data was breached on customer income, savings, mortgages, health issues, insurance policies and passport numbers.  The whistleblower provided customer information to the newspaper on 2,000 Barclays customers and said the information was sold to brokers for “investment scams” and that each of the 27,000 files could be sold for as much as $82.

Barclays CEO refuses bonus

The data breach and earnings comes one week after Barclays PLC (NYSE:BCS) (LON:BARC) CEO Anthony Jenkins turned down his 2013 bonus due to regulatory penalties and lawsuits.  The bank is among many being investigated for manipulation of currency markets, as reported Friday in ValueWalk.

According to a Reuters report, Jenkins’ focus on a return to profitability rests on plans to reduce costs, including hundreds of job cuts, cutting risk and reducing leverage.  In October Barclays PLC (NYSE:BCS) (LON:BARC) said it would be reviewing its trading operations over a “several year” period.  The bank recently cut nearly 400 investment bank jobs and, according to reports, plans to cut a similar number in its corporate bank staff and branches, with the goal to cut the size of its balance sheet by 65-80 billion pounds.

On a going forward basis, Investec remains positive on the stock. “As such, we still see strong valuation support, with Barclays PLC (NYSE:BCS) (LON:BARC) trading on just 0.9x 2013e tNAV, or 7.0x 2016e EPS, further supported by a 2016e prospective dividend yield on 7.0% with de facto regulatory approval already in place,” the research note said.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com