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Barclays Profits Erode over Tougher Regulations
Posted by: Muhammad Bazil (IP Logged)
Date: July 30, 2012 10:25AM

Barclays (BCS), one of the world’s largest banks, continues to struggle with mounting legal disputes, and investigations over rate rigging of the Libor.

The bank’s latest set of problems managed to impact profits, which the bank announced today were down 76 percent to $752 million during the first six months of the year. The bank had previously accepted charges of unethical conduct and paid fees to British regulators along with HSBC (HBC), Royal Bank of Scotland (RBS) and Lloyds Bank Group (London:LLOY).

During the earnings call the bank said the Financial Services Authority, UK Regulators, were looking into a number of current and former employees including Finance Director Chris Lucas, over a disclosure of fees. Issues revolve around fundraising arrangements with Qatar Investment Authority and the Sumitomo Mitsui Banking Corporation of Japan, according to regulatory filings.

In 2008 the bank sought the help of investors from the Middle East, a concern that has caught a few shareholders eyes, and created reason for scorn. The move raised £7.3 billion right after the collapse of Lehman Brothers.

Last month (June), Barclays and its subsidiaries agreed to pay $450 million in fees to American and British Regulators over manipulation of the Libor. Today, July 27, the bank disclosed that it was still facing a number of class action lawsuits related to the Libor manipulation.

After the allegations had erupted, the bank’s leader Robert Diamond, and Chief Operating Officer Jerry Del Missier both resigned. Mr. Del Missier is set to receive a $8.75 million compensation package; currently, the bank has not agreed to comment. To conduct an internal investigation the bank has tapped Anthony Salz, vice-chairman of the firm Rothschild.

Timothy Geithner, U.S. Treasury Secretary, said today that U.S. officials would forcefully pursue criminal investigations. Mr. Geithner has previously been critiqued for being too tame with enforcing tough regulations. He insisted today that while investors may be upset about the Libor, it did not contribute to an inflated bailout cost of banks.

Geithner, according to his own account, notified U.S. officials at the Treasury Department, Securities & Exchange Commission and the Commodity Futures Trading Commission, prompting the discovery of Libor manipulation and the Barclays settlement.

Stock Still Up

While the earnings call did not go well for the bank, stocks were up as investors were pleased with results. Stocks marched upward at 6 percent today, which was reassuring considering the stock has fallen 27 percent in the previous 12 months.

Net profit rose 9 percent, less accounting charge and other one time costs, to £3.07 billion, compared with £2.7 billion the previous year at the same time. The bank attributed the increase as a result of retail operations.

Not all news was good, as the investment portion of the bank was hit hard by market volatility partly caused by the European debt crisis.

The bank also announced a £1 billion profit before taxes for the investment banking division, for the three months up to June 30. The profit was 2.5 percent higher than the previous year’s for the same time period.

Barclays also reduced exposure to the debt in Southern Europe by 22 percent, to £5.6 billion, during the first six months. Barclays return on equity, not counting the fees and other one-time costs, rose to 9.9 percent, lower than the bank’s target of 13 percent.

“We continue to be cautious about the environment in which we operate and will maintain the group’s strong capital, leverage and liquidity positions,” Chris Lucas, Barclays finance director, said in a statement.

Analysis

The bank made $6.4 billion in earnings last quarter despite major obstacles and leadership roles shifting. I believe the bank to be on the right track financially and would stay cautious only in regard to ongoing investigations, and potentially huge fines. While other banks may also share the burden, I believe that Barclays will still continue to be at the center of Libor investigations. Hold.


Stocks Discussed: LLOY, BARC, HBC, RBS,
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