Barclays sets aside 500 million pounds for FX fines as profits rise
By Steve Slater
LONDON (Reuters) - Barclays Plc set aside 500 million pounds ($800 million) in the third quarter to cover potential fines for rigging currency markets, taking the shine off a rise in profits as its retail business performed well and costs were cut.
The British bank on Thursday joined other big rivals in signalling that a settlement over alleged manipulation of the $5.3 trillion-a-day foreign exchange market is near with regulators in both the United Kingdom and the United States.
"These are ongoing discussions with certain regulatory agencies and it's our best estimate of what we feel is the provision required as a consequence. The discussions are fluid and they are continuing," Barclays Finance Director Tushar Morzaria told reporters, declining to comment further.
Barclays is one of six banks in talks with UK regulators to pay about 1.5 billion pounds in a group settlement, sources have said. They said a deal could come in mid-November and U.S. regulators were also working on a group payment.
JPMorgan , UBS and Deutsche Bank each set aside more than $1 billion in the third quarter for extra legal costs, which sources have said is mostly to cover potential fines relating to currency market investigations. Royal Bank of Scotland and HSBC are expected to make provisions on Friday and Monday respectively.
Past conduct problems continue to dog Barclays Chief Executive Antony Jenkins as he tries to improve profitability, standards and conduct by shrinking the investment bank, slashing costs and axing underperforming units.
Barclays is shifting to become more reliant on retail banking, rather than more volatile investment banking.
The bank said costs in the third quarter fell to their lowest level for five years, and were down 7 percent so far this year. Barclays has cut 7,800 jobs in the last 12 months out of 19,000 it expects to axe by the end of 2016.
Its shares were down 0.5 percent at 219.4 pence by 1140 am London time, outperforming a 1.9 percent drop by Europe's banking index <.SX7P>. Analysts said the cost cuts, the performance of its retail bank and its credit card arm, Barclaycard, were good.
"Barclays' transition from investment banking towards retail banking continues, with the three retail divisions accounting for 80 percent of third-quarter core profitability," said Andrew Coombs, analyst at Citi, who rates Barclays' shares a "buy".
COST CUTS
Barclays reported underlying pretax profit in the three months to the end of September of 1.6 billion pounds, up 15 percent from a year before.
Retail banking profits rose 11 percent from a year ago and at Barclaycard they climbed 16 percent, but investment banking profits slumped 39 percent to 284 million pounds.
Investment bank revenues dropped 10 percent in the quarter from a year ago as fixed income, equities and advisory income all fell. Its drop in revenue contrasted with a 17 percent increase on average across the big U.S. investment banks.
"We see Q3 results as a clear indication of a deleveraging investment bank under significant pressure –- especially in businesses such as prime services and equities which have been impacted by dark pools, deleveraging repo books and a cost focus from management," said Chirantan Barua, analyst at Bernstein.
Barclays said it had been hurt by a client retreat after New York's attorney general accused it of lying about its high-speed trading venue, known as a dark pool. Barclays is fighting the lawsuit.
"The dark pools allegations that happened right at the start of the quarter have had an impact," Morzaria said.
Barclays set aside another 170 million pounds to compensate customers for mis-sold loan insurance products, taking its bill for payment protection insurance to 5 billion pounds.
The latest rise was largely offset, however, by a 160 million pound reduction in its provision for compensation to small businesses mis-sold interest rate hedging products.
The bank's leverage ratio, which measures capital as a percentage of assets without adjusting for risk, nudged up to 3.5 percent at the end of September from 3.4 percent in June.
UK regulators are expected to lift the minimum leverage ratio requirement for banks to between 4 percent and 5 percent on Friday, but give banks several years to get to that level.
That decision could force Barclays to accelerate its asset sales and shrinking of the investment bank, or constrain its dividend, analysts said.
Morzaria said he was "very confident" the bank would improve its leverage ratio to above 4 percent and was ahead of its 2016 timetable to do so.
(1 US dollar = 0.6250 British pound)
(Additional reporting by Matt Scuffham; editing by Clara Ferreira Marques and David Clarke)
