Barclays disclosed on Wednesday that it set aside additional £800 million to cover potential settlements related to the foreign exchange manipulation allegations.
The British bank said its total provision for legal, competition, and regulatory is now £2.471 billion, up from £1.690 billion. Barclays said the provision included £2,092m for investigations and litigation primarily related to foreign exchange. The company determined the £800 million in the first quarter based on developments with certain authorities regarding the matter.
Barclays Finance Director Tushar Morzaria told reporters, “That [extra provision] reflects the further discussion we’ve been having with a number of regulators and agencies around the world across multiple jurisdictions.”
Mike Trippitt, an analyst at Numis Securities, commented, “The increased FX provision, unaccompanied by further news-flow, is rather troubling.”
Barclays also allocated additional £150 million to compensate customers, who were mis-sold with insurance products in Britain. Its total provision for PPI redress increased to £943 million.
Barclays pulled out from earlier settlement
In November, Barclays pulled out a settlement between certain authorities and six rival banks because it wasn’t able to reach an agreement with the regulator in New York. According to Morzaria, Barclays did not regret its decision to pull out from the earlier settlement. The British bank wants to settle the allegations with as many regulators as possible at the same time.
According to the banking regulator in New York, it could reach a settlement agreement with Barclays next month if it would exclude an investigation regarding a potential rigging of rates through computer programs. A settlement with Barclays could take several months if that probe is included.
The United States Department of Justice was reportedly pushing for a massive settlement with Barclays, Citigroup, JP Morgan Chase & Co, Royal Bank of Scotland Group, and UBS Group in connection with the foreign currency manipulation allegations. The parties are expected to reach a settlement as early as mid-May. According to reports, the DOJ is pushing the banks to plead guilty.
The Standard & Poor’s reported that four biggest banks in Britain incurred £42 billion in charges related to misconducts over the past five years. The banks are expected to record additional £19 billion in charges over the next two years.
Barclays Q1 performance
Barclays reported that its adjusted profit before tax increased 9% to £1.848 billion driven by improvements in its Investment Bank, Personal and Corporate Banking (PCB), and Africa Banking units.
The British bank said its adjusted income declined 3% to £6.43 billion. Its adjusted total operating expenses dropped 7% to £4.12. Its effective tax rate on adjusted profit before tax was 28.6%.
Barclays said its return on equity, a key measure of profitability was 10.9% for the core business. The British Bank said the profits of its Investment Bank increased 37% to £675 million.
“The investment bank had a good Q1, representing a performance, which is more indicative of the potential of the franchise following the repositioning undertaken last year,” said Barclays CEO Antony Jerkins.
