One would think Barclays has had a rocky start to the year, judging by events in recent weeks.

On the surface, the combination of a $2 billion fine from the US Department of Justice (DoJ), fines over CEO Jes Staley’s pursuit of a whistleblower and a Q1 earnings loss does not appear to paint a rosy picture.

But wait, these may actually be victories dressed up as defeats.

In other words, it’s possible that each of these represents, if not exactly a triumph then, at least one of the best possible outcome for the bank.

How, you ask? Let’s take a closer look.

Whistleblower woes

Take the whistleblower affair. Barclays CEO Jes Staley has spent the past year under a joint investigation by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) over his repeated efforts to unmask the author of anonymous letters sent to the Barclays Board.

The letters raised concerns about Staley’s hiring of Tim Main, who had formerly been his colleague at JP Morgan.

Upon receiving the letters in June 2016, Staley instructed the bank’s information security team to find the author of the letters.

They were subsequently told to drop the investigation after Staley was informed that it was not appropriate to try to identify the whistleblower.

Just weeks later, however, Staley re-launched the investigation based on what Barclays has referred to in a statement as the “honestly held, but mistaken belief” that he had clearance to do so.

The bank’s investigative team went so far as to mislead US Postal officials into assisting with their hunt, by suggesting that the letter involved a threat to the bank and was related to criminal activity.

The matter came to the Barclays Board’s attention in early 2017 after another employee spoke out. The Board notified the FCA and PRA, and hired a law firm to conduct an investigation into the matter.

The fallout from this affair could have been extremely serious for Staley personally, and for Barclays as a whole.

The case was the first real test of the Senior Managers and Certification Regime, which is intended to improve individual accountability in financial services including for the protection of whistleblowers.

CEO survival

The FCA and PRA investigation could have banned Staley from running a financial institution, and sent Barclays looking for its fifth leader in five years.

Instead, after what some have called an excessively long investigation and despite acknowledging that Staley broke rules of conduct, Staley has been asked to pay fines to both authorities, in addition to a cut to his bonus imposed by Barclays.

Barclays will be required to report to the FCA and PRA on aspects of their whistleblowing programme.

A spokesperson for the FCA declined to respond to questions on what exactly this monitoring will involve, saying “we won’t be commenting further until the issue has reached a conclusion.”

Given the seriousness of his actions, this is possibly one of the better outcome that Staley and Barclays could possibly have hoped for. Staley can even get a 30% discount if he agrees to paying both fines. Whistleblower advocates have decried the FCA and PRA’s decision, saying it sends a bad message to those considering exposing wrongdoing in the future.

“It is blatantly clear Jes Staley violated several contractual and legal standards in the UK and in Barclays. My initial response when I heard about this transgression was that he should have been fired immediately. We now scare off other whistleblowers from coming forward,” former UBS whistleblower Brad Birkenfeld told the Financial News.

‘Hefty’ US fine

Barclays has had another curious sort of victory against the US Department of Justice in recent weeks, settling a two year court case with by agreeing to pay $2 billion in fines.

As in the whistleblower affair, whilst at first glance this might appear to be a blow to the bank, in fact when placed in context it could actually be a win for Barclays.

Since 2013, DoJ has been pursuing major banks around the world for their role in creating the conditions which lead to the 2008-9 financial crisis, including through sales of toxic residential mortgage-backed securities.

Total fines are expected to be close to $60 billion, including fines of $16.4 billion and $13 billion for Bank of America and JP Morgan respectively.

Barclays decided to challenge the fines, going to court with the DoJ in 2016.

That gamble has paid off – from an expected fine of $5 billion, Barclays’ lawyers have succeeded in driving the settlement down by 60%.

This is less than the fine levelled for its role in the Libor scandal ($2.38 billion).

Many of Barclays’ peers are probably now wishing they had not been so quick to pay up, potentially setting a worrying precedent for future fines for financial misconduct.

“The settlement came at the bottom end of expectations and much sooner than expected,” analyst Ian Gordon told Bloomberg, saying it was a “very happy Easter” for the bank. In a statement, Staley described himself as pleased with the settlement, and with the prospect of “putting legacy matters like this one behind us.”

Financial results

Thus, whilst the fines resulted in a knock to Barclays’ Q1 earnings, Barclays found itself facing only a comparatively insignificant £764 million loss as opposed to a potential £2.9 billion loss if it had not fought down the fines.

The bank’s results were bolstered by an unexpectedly strong performance, including more than doubling its first quarter net profits to £1.2bn.

Despite the headlines, over the past few weeks Barclays has repeatedly succeeded in wriggling out from between a rock and a hard place with only a few bruises.

Revival

Perhaps Staley is feeling lucky – Barclays has announced plans to revive its investment banking arm in Australia, just two years after having suddenly pulled out of the Asia Pacific region.

The move comes against the backdrop of the Australian Royal Commission into the banks, which has exposed misconduct including fraudulently impersonating customers, charging fees for no service and knowingly charging fees to dead clients.

The Australian government has promised to crack down on corporate misconduct and impose harsher penalties.

A Barclays spokesperson declined to comment on whether Barclays expects its move back into Australia to be affected by the findings and response to the Commission, saying “We will not speculate on the outcome of Royal Commission or potential consequences.”

It remains to be seen whether jumping back into the Australian market amidst the current sturm and drang will pan out as well for Barclays as its cases with the FCA, the PRA and the DoJ did.

Compliance goals

So far, 2018 has been a pretty eventful time for the bank, with apparently lots to smile about.

This is not, however, to say its worries are all over.

It still has some issues, such as the ghost of the UK Serious Fraud Office’s Qatar probe that came to life again in February.

Barclays, however, wants to come across as a bank ready to take compliance issues seriously this time round.

CEO Staley says his bank is determined to finally shut the door on its past misdeeds.

“PPI, Libor, Foreign Exchange, and now RMBS – all have largely been dealt with – and this represents a huge weight off Barclays,” Staley told shareholders at Barclays’ recent AGM.

“We have worked hard to change the culture of the bank in recent years and we’re on a very different course today.”

As it goes through the remainder of this year, and the next few years ahead, time will tell whether Barclays is really charting a new course of compliance, or whether, once the sting of the fines wears off, old habits may begin to creep back in again.

 

Elise Thomas Isle of Man analysis

About the writer: Melbourne-based Elise Thomas has a background in international affairs and a strong interest in financial crime, data and technology issues.

 

 

 

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