Antony Jenkins has two big passions: technology and culture in banks. The Barclays chief executive loves to talk about both. Yet this week his pet subjects look like they may come back to bite him.
The lawsuit filed by New York’s attorney-general alleging that Barclays favoured high-speed traders using its “dark pool” electronic trading venue while misleading institutional investors could be a serious setback for Mr Jenkins.
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Dubbed “Saint Antony” for his promise to clean up the bank’s culture after replacing Bob Diamond in the wake of the Libor manipulation scandal, Mr Jenkins has struggled to win over sceptics in the media and among investors and politicians.
Mr Jenkins has said it will take a decade to change the culture at Barclays. Earlier this month he told a conference: “I recognise that what matters now is not public commitment to change but, rather, demonstrating it over time and earning the trust and permission to be believed – and we will do that.”
The problem he now faces is that the US lawsuit concerns a relatively new technology – its LX dark pool – which Barclays launched only four years ago. And the alleged wrongdoing seems to have continued after Mr Jenkins took over 22 months ago.
The Barclays chief has often talked of his ambition to put the bank at the forefront of the technological revolution sweeping the industry, both in high street retail banking and Wall Street investment banking.
But the New York attorney-general’s allegation that Barclays was “telling investors they were diving into safe waters”, while its dark pool “was full of predators – there at Barclays’ invitation” could erode clients’ faith in its investment banking technology.
Analysts said the US lawsuit would hit its equity trading division – a business that Barclays is putting more emphasis on as it scales back in other areas such as fixed income, commodities and currencies in a restructuring unveiled last month.
“For Antony Jenkins the bigger issue is what this means for the whole project of restructuring the investment bank when the equities business is a core business that will now presumably be hobbled. It is a major blow,” Christopher Wheeler, banking analyst at Mediobanca, said.
The British bank has used its dark pool to expand aggressively into the US equities market in recent years. From 2009-12, its market share in equities sales and trading in the Americas rose from 6 per cent to 7.8 per cent, according to an investor presentation a year ago. Its US equity and prime brokerage business increased revenues by more than a fifth in both 2012 and 2013.
“They are unique in those market share gains in such a competitive environment. A huge part of that has to do with the dark pool,” said Chirantan Barua, senior analyst at Bernstein Research.
Lehman Brothers, the defunct investment bank whose operations form the heart of Barclays’ US business, is known for having been early in establishing a large client base among high-frequency traders.
Barclays said: “We take these allegations very seriously. Barclays has been co-operating with the New York attorney-general and the Securities and Exchange Commission and has been examining this matter internally. The integrity of the markets is a top priority of Barclays.”
The bank has built the world’s second-biggest dark pool, behind that of Credit Suisse, and it operates in several markets around the world, including the UK. So far, there is no sign of other regulators investigating Barclays or other dark pool operators.
Credit Suisse analysts on Thursday estimated that Barclays could face $163m of litigation costs relating to its dark pool technology as part of a broader £4bn estimate of total unprovisioned future litigation losses.
They said this would “put pressure on the capital base, which based on our estimates for litigation, is the weakest of the peer group”.
“Investors are not so much worried about the potential fine,” said Mr Barua at Bernstein. “The main point for them is that it will have revenue and market share implications at a time when Barclays is restructuring and already losing staff and paying people less.”
Mr Jenkins has had a torrid time since taking over at Barclays. First he misjudged regulators, reassuring shareholders he would not need more capital before being forced to raise £5.8bn in a rights issue last year.
Then he upset investors by announcing higher bonuses even though profits were falling, which he defended as necessary to avoid top bankers quitting, only to see several senior bankers leave after collecting their payouts.
Finally, his much vaunted restructuring of the bank last month has failed to produce the hoped-for uplift in the share price, which was down 5 per cent on Thursday and has fallen more than 18 per cent in the past year.
One top 40 investor in Barclays joked after the lawsuit was announced: “And people wonder why we are not giving investment banks a high multiple.”
The US lawsuit over its dark pool technology is a setback for Mr Jenkins’ attempt to change the culture at Barclays. But if its equities business is weakened and a hefty fine leaves the bank needing to raise more capital, the consequences could be much more serious.
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