Barclays Takes Extra $1.2 Billion Hit For Potential Forex Settlements

Barclays (BARC.L) set aside another 800 million pounds ($1.2 billion) on Wednesday to cover potential settlements for alleged foreign exchange manipulation, hitting profits and reflecting its struggle to put past problems behind it.

Barclays said it had now set aside 2.05 billion pounds ($3.2 billion) to cover any settlement, but offered only limited clues on how soon a deal might come.

U.S. and British authorities are investigating the allegations. Barclays pulled out of a settlement between some authorities and six rival banks in November because it had not reached a deal with New York’s regulator.

“That (extra provision) reflects the further discussions we’ve been having with a number of regulators and agencies around the world across multiple jurisdictions,” Finance Director Tushar Morzaria told reporters.

Barclays wanted to settle the allegations with as many agencies as possible in one go and Morzaria said the bank did not regret pulling out of the earlier settlement.

New York’s banking regulator has said it could reach a deal with Barclays next month if it excluded a probe of the possible rigging of rates through computer programs. It could take several more months if that trading is included.

Barclays could settle next month with a host of regulators, and leave any settlement with New York’s regulator on computer trading until a later date.

Barclays also set aside another 150 million pounds for compensating customer mis-sold insurance products in Britain, which has now cost Barclays 5.4 billion pounds and all British banks more than 26 billion.

Britain’s four biggest banks have paid out 42 billion pounds in charges related to misconduct in the past five years, and face paying out another 19 billion pounds over the next two years, Standard & Poor’s said this week.

PROVISION DRAGS
Under Chief Executive Antony Jenkins, Barclays has abandoned its ambition of being a Wall Street powerhouse, shrinking its investment bank in favor of a return to its retail roots. He is cutting 19,000 jobs and shedding unwanted assets and businesses to cut costs and improve returns and its capital strength.

However, the cost of settling past misconduct issues continues to dog Barclays’ attempt to turn itself around.

The bank reported a statutory pretax profit of 1.3 billion pounds, down 26 percent from a year ago.

Its underlying pretax profit, stripping out the provision and other one-off items, was 1.8 billion pounds, up 9 percent from a year ago and just above the average forecast from analysts polled by the company.

Barclays shares dipped 0.6 percent by 1010 GMT (6.10 a.m. ET), as analysts said the results showed progress being made by the bank, but the forex provision was higher than expected.

“The increased FX provision, unaccompanied by further news-flow, is rather troubling,” said Mike Trippitt, analyst at Numis Securities.

Return on equity, a key measure of profitability, was 10.9 percent for the core business, as earnings from personal and corporate banking rose 14 percent and underlying costs fell 7 percent.

The investment bank’s profits rose 37 percent on the year to 675 million pounds, as revenues rose 2 percent to 2.2 billion pounds, in line with analysts’ expectations and echoing a strong performance by its U.S. rivals.

“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,” Jenkins said.

REUTERS