Barclays faces new probe, more U.S. Libor lawsuits

Barclays Plc (BARC.L) faces a new regulatory probe and more U.S. lawsuits, events that could make it harder for the British lender to repair the damage to its reputation caused by its role in the interest-rate rigging scandal rocking banks.

Barclays said on Friday that Britain's financial regulator has started an investigation involving the bank and four current and former senior employees, including finance director Chris Lucas.

The Financial Services Authority is investigating whether the bank made sufficient disclosures about the fees it paid under commercial agreements related to its capital raisings in June and November 2008. The bank said it is satisfied with its disclosures, but refused further comment.

It also faces more U.S. lawsuits after a record 290 million pound ($455.3 million) fine last month for rigging the Libor interest rate benchmark, sparking fierce criticism about its culture and risk-taking.

More than a dozen other banks are expected to be drawn into the global Libor investigation and could also be fined.

"We are sorry for the issues that have emerged over recent weeks and recognize that we have disappointed our customers and shareholders," Chairman Marcus Agius said on Friday.

"I am confident we can, and will, repair the reputational damage done to our business in their eyes and those of all our stakeholders," Agius said, reaffirming a commitment to deliver a return on equity of 13 percent.

The bank beat forecasts with a profit of more than 4 billion pounds ($6.3 billion) and said there has been no exodus of clients and its performance during July has been ahead of last year.

Barclays shares were up 4.4 percent to 160.4 pence by 0839 GMT, outpacing a 0.4 percent rise by the European bank index .SX7P.

Barclays is searching for a new chief executive and chairman after they quit following the Libor scandal.

Agius said the board was focused on filling those positions, but gave no update on likely timing. Investors are keen for one or both of the CEO or chairman to come from outside, to be able to implement a far-reaching overhaul.

Former J.P. Morgan (JPM.N) banker Bill Winters is favorite to be CEO and former UK Cabinet Secretary Gus O'Donnell is front-runner for chairman, according to industry sources and UK media reports.

An inquiry by UK lawmakers into the Libor scandal showed that Britain's financial regulator had warned Barclays four months earlier that its culture was too aggressive and must change.

It exposed a strained relationship with regulators, and as the backlash built, the Bank of England effectively forced Bob Diamond to resign as chief executive.

Agius, a Cambridge- and Harvard-educated pillar of London banking who has been criticized for not reining in Diamond, has taken on executive duties but will leave when a successor is found.

More Lawsuits

Barclays had already been named as a defendant in class action lawsuits in U.S. federal courts for its role as a contributor to the U.S. dollar Libor panel. Another class action was filed for its roles on Japanese Yen Libor panels.

A new class action was started on July 6 against Barclays and other Euribor panel banks alleging manipulation, and the bank and a current and former director have been named as defendants in a pending class action for its role as a Libor contributor and alleging mis-statements in past annual reports.

The threat of litigation is a concern to investors, who are keen to see what Barclays is doing to rebuild its brand and restore shareholders' confidence.

The bank reported an underlying pretax profit of 4.2 billion pounds ($6.6 billion) for the six months to the end of June, above an average forecast of 3.8 billion pounds from analysts polled by the company and up 13 percent from a year ago.

It said it faces a bill of 450 million pounds to pay compensation to customers misled about interest-rate hedging products to small businesses. The figure is based on initial estimates and Barclays said the ultimate cost is uncertain.

UK banks agreed last month to pay compensation to customers who were misled about the products.

Barclays' investment bank fared better than most rivals in a tough second quarter, with income of 3 billion pounds up 5 percent from a year ago and down 12 percent on the first quarter.

Barclays is reviewing all parts of its investment bank, people familiar with the matter said, and the Libor scandal has intensified calls for it to shrink the business.

It has admitted its culture needs to change and has picked veteran lawyer Anthony Salz to lead a review of practices, expected to be completed before May 2013.

Barclays said its statutory profit fell 71 percent to 759 million pounds including the fine, interest rate mis-selling charge and movement in the value of its own debt.

($1=0.6370 British pounds)

[Source: By Steve Slater and Matt Scuffham, Reuters, London, 27Jul12]

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