Barclays dragged into new probe after Libor blow

Barclays Plc revealed a new regulatory probe and more U.S. lawsuits on Friday, making it harder for the British lender to rebuild its reputation damaged by the central role it played in the interest rate-rigging scandal shaking banks.

Despite these latest blows, Barclays' profit of more than 4 billion pounds ($6.3 billion) in the first six months of the year beat forecasts. The bank said its performance during July was ahead of last year and there had been no exodus of clients, sending its shares up more than 7 percent.

Barclays said Britain's financial regulator had started an investigation into the bank and four current and former senior employees, including finance director Chris Lucas, on whether the bank made sufficient disclosures about the fees it paid in a 2008 capital raising.

The fees were payable under commercial agreements related to deals in June and November 2008. It agreed to get advisory services from Qatar Investment Authority and explore a relationship with Japan's Sumitomo Mitsui Banking Corp.

Barclays raised 4.5 billion pounds in June 2008, including from SMBC, followed by a 7 billion cash call in November that year from Qatar and Abu Dhabi investors to avoid taking a government bailout.

The bank has said it paid 300 million pounds in fees on the latter deal, including about 116 million pounds to Qatar Holding and 110 million to Sheikh Mansour Bin Zayed al Nahhan, a member of Abu Dhabi's royal family.

Roger Jenkins was the main architect of that fundraising. He left Barclays in early 2009, setting up a Middle East advisory boutique. He is now with Brazilian investment bank BTG Pactual. Jenkins declined to comment.

The investigation, which the FSA has started in the past month, does not regard payments to Barclays staff, people familiar with the matter said.

Barclays 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.

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.

A new chairman should be chosen first, so the new chief executive knows who will be in the chair, Agius said.

Former J.P. Morgan 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.

Its shares were up 7.5 percent to 165 pence by 1248 GMT, outpacing a 1.1 percent rise by the European bank index.

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.

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 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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