Courtroom chaos rolls on and on
Unfortunately for Barclays, there appears to be no end to the steady stream of misconduct allegations stretching back to before the 2008/2009 banking crisis, a situation thatcould cause a significant drain on the balance sheet as the prospect of severe financial penalties drags on.
Most notably Barclays is currently locked in controversy over its dark pool private trading platform, with the New York attorney general asserting that the bank had demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit to benefit its high-frequency traders.
In an unusual step Barclays has elected to vigorously fight the case in court rather than negotiate a settlement with regulators. But the consequences of the case could result in catastrophic fines for the bank if found guilty, not to mention the wider effect of Barclays being dragged through the mud once again volumes at the firms trading platform have already fallen through the floor since the claims emerged.
And the firms legal team received a further blow to the solar plexus this week when it, along with more than a dozen other banks including HSBC and Royal Bank of Scotland, was hit with a $1.15bn lawsuit from the US State of Virginia. The plaintiff claims that the banks defrauded the states retirement fund by selling it sub-standard mortgage bonds between 2004 and 2010.
Barclays, like the majority of the UKs biggest banking players, has also had to set aside vast sums to cover a vast array of misdeeds. The mis-selling of payment protection insurance (PPI) has been one of the biggest headaches for the bank, and Barclays added a further 900m for redress during January-June.
Figures released last month suggested that the company could be turning the corner on this front, however, with new general insurance and PPI complaints toppling by 37% to 182,564 during the first half. But since then the Financial Conduct Authority (FCA) ordered 2.5 million cases assessed between 2012 and 2013, where claims may have been wrongly rejected or claimants undercompensated, to be reappraised.
By the looks of things Barclays looks set to remain locked in costly litigation battles for some time to come, making a final bill nigh-on impossible to predict but which could have a hugely-detrimental effect on earnings.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.