17th July 2013
The Barclays saga just got even more tortuous writes John Lappin. This morning the UK high street bank has been rocked by a $470m trading fine in the US for allegedly manipulating power prices in among other places, California as the Ft.com reports.
There are understandable sensitivities stateside about energy market manipulation after the Enron debacle. To put it another way, the Californians in particular have an unsurprisingly low tolerance level for traders threatening to turn off their air conditioning.
Barclays is refuting the claims – and the fine – from the Federal Energy Regulatory Commission. But you can see why, in the court of public opinion and with the various regulators worldwide, it feels as the bank has almost shifted the burden of proof. It almost begs the question; what has it not done wrong in the past five years?
There has been a litany of wrongdoing from the bank. From PPI mis-selling to the mass market, inappropriate investment fund sales to its retail customers, interest swaps to small businesses to Libor market manipulation – for which it paid out £290m – yes, Barclays has kept itself busy in all the wrong ways.
In all of these cases, it has been roundly condemned for its behaviour. In some instances, Barclays may even argue that some of its penalties have been overly harsh given the ‘banking bashing’ spirit of the times. But surely too much has gone wrong.
If Barclays continues to fail to control its suite of operations, then maybe it needs to get smaller. It got larger, of course, in the wake of the Lehman Brothers collapse when it picked up a large part of Lehman’s US operations. At the time, the deal was viewed as showing what a great deal maker former CEO Bob Diamond was. The US fine may take more than a little of the gloss off it.
Whatever the history, Barclays has had plenty of time to get a handle on its global operations. But if things keep going wrong maybe the answer is to break it into smaller more manageable units. Of course, perhaps the most sensitive accusation of the lot is the fact that regulators are now investigating whether Barclays actually loaned money to Qatar to fund its own cash call.
That loan helped Barclays make the case that it was still investible, even in the eye of the storm of the financial crisis. Of course for Qatar the investment paid off.
In the last 12 months, Barclays is up significantly at above 300p but it is nothing like its pre-crash levels of around 720p a share and the five and six year view reveals its progress and its reverses. Dividends are also nothing like what they were though at least it is still paying them.
But on the issue of investability, Barclays is like a stock to trade short term, or maybe as a recovery play but it doesn’t look like a reliable, high dividend paying stock which should be in every UK investor’s core portfolio.
That should be what the management are aiming for. It’s a long way from there this week.