Barclays drawn into foreign exchange scandal

Profits at investment arm more than halve after investors hold fire over quantitative easing fears

Nick Goodway
Thursday 31 October 2013 01:00
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Barclays has become the latest bank to reveal that it is being investigated over attempts by its traders to manipulate the $4 trillion (£2.5trn)-a-day foreign exchange markets.

The breaking scandal over dealers' attempts to inflate their profits by fixing some of the key benchmarks used in the forex market has all the potential to be as big if not bigger than the Libor fixing scandal.

Barclays is one of only five banks that have paid out $3.5bn between them to settle with regulators over Libor fixing. That inquiry has been running for more than two years. The forex-rigging investigations only broke this summer. It is alleged that traders across several banks in many countries agreed prices and traded their own books profitably before carrying out foreign exchange transactions for clients.

The news came as Barclays said profits fell by 26 per cent in the past three months following a more than halving of profits from its investment bank.

Barclays said it had received enquiries from several authorities with whom it is co-operating and was "reviewing its foreign exchange trading covering a several-year period through August 2013".

The news came a day after UBS and Deutsche Bank said they were co-operating with investigators over allegations of rigging the forex market.

Royal Bank of Scotland also confirmed it is assessing the way it offers foreign exchange benchmark services to its clients. It earlier passed a former forex trader's electronic messages to the Financial Conduct Authority.

Barclays said: "It is not possible at this stage for Barclays to predict the impact of these investigations on it."

The news is a blow to Antony Jenkins, who took over from Bob Diamond as chief executive 14 months ago with a pledge to clean up the bank's image following scandals including the £290m fine for Libor rigging. Barclays said it could not comment further than the statement made in its interim management report on the third quarter. The foreign exchange investigation was not revealed in Barclays' prospectus for its £6bn rights issue published in mid-September. Sources said the probe had begun after that date.

Barclays' third-quarter headline profit fell to £1.38bn with Mr Jenkins saying there had been good performances in UK retail and business banking, Barclaycard, corporate banking and the equities and advisory parts of investment banking,

But total investment bank profits dived by 53 per cent to £463m with the fixed-income division seeing a 44 per cent drop in income as investors sat worried central banks would draw back on quantitative easing.

Mr Jenkins said: "I am particularly pleased with our corporate broking, where we were involved in most of the big equity fundraising on both sides of the Atlantic."

Barclays did not have to increase its provisions for mis-selling PPI or interest rate hedges and said the rate of new claims was slowing down. Barclays shares firmed by 2.4p to 268.46p.

Richard Hunter, the head of equities at Hargreaves Lansdown stockbrokers, said: "Barclays will continue to benefit from a general economic recovery, albeit gradual, and it has the financial cushion and physical presence to capitalise on any upturns."

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