Barclays Faces New Scrutiny

There are new investigations for Barclays (NYSE: BCS  ) to face, even as it continues its struggle with the LIBOR-fixing scandal. The bank's third quarter results came with a scant two paragraphs noting the new investigations, and avoided all but the merest mention of them on the newest conference call.

But investors need to understand the scope of the new charges. One comes from the U.S. Department of Justice and the SEC. The other indicates that the bank is defending itself against the U.S. Federal Energy Regulatory Commission (FERC) for power trading in the U.S. Let's look at both in a bit more detail than the bank seems willing to offer.

The DOJ and SEC -- frenemies to banks worldwide
While they keep consumers safe and white collar thugs off the streets, the DOJ and SEC are not making life any easier for Barclays. The regulators are now taking on the bank for potentially violating anti-corruption laws, a charge that is also under investigation in the U.K. The allegations stem from a fundraising move made in 2008. That year, the UK's regulatory bodies increased the amount of capital that a bank had to have on its balance sheets, leading some banks to take government money to keep them afloat.

Barclays took a different tack, raising money from private investors in the Middle East. To be exact, the bank took $8.8 billion from a number of investors, including the Qatari government, in order to avoid having the U.K. government meddling in its affairs. While the funds themselves are not under scrutiny, it seems like the method used to raise the funds may have been in violation of a number of laws. 

After the deal, Barclays paid the Qatari Investment Authority (QAI) for "advisory services." The twist is that the QAI charged Barclays close to $465 million for those services, and may have only agreed to bail the bank out because it was given the business. Depending on how that agreement took place, Barclays may have run afoul of corruption laws, a position that the bank has vehemently denied. The British investigation into Barclays is being conducted by the Serious Fraud Office, and began in August this year. The new U.S. investigation has yet to announce exactly what's in focus, but it will likely be the Qatari money.

Power manipulation
As a wholly separate investigation, the U.S. FERC is looking at potential energy market manipulation by Barclays staff from 2006 to 2008. The commission alleges that bank staff took large positions in the energy markets, and then used those positions to manipulate swaps that the bank had issued. 

FERC is looking to fine Barclays $435 million, the largest amount ever sought by the agency. Additionally, Barclays would have to repay the $35 million that it allegedly made through the power manipulation. Those fines would put Barclays' punishment well ahead of other, similar cases that have been prosecuted recently, like Deutsche Bank (NYSE: DB  ) . The German bank was accused of a similar crime earlier this year, and has been issued a fine of just $1.5 million. But that fine was based on the bank making only $125,000 profit over a three-month period; the Barclays' accusations span two years and resulted in much more for the bank.

The bottom line for investors
Barclays could turn its ship around, and maybe its new CEO is the guy to do it. Anthony Jenkins has been with the company since 2006, after a six-year stint in the 1980s. Jenkins previously ran Barclaycard, and he's a respected leader within the bank. Personally, I'd like to see a bit more from him regarding the bank's past dealings. On the conference call, the new allegations got scant mention, while analysts harped on about Barclays' capital position and whether the world was moving away from Basel III. Before I'd feel comfortable putting more money into Barclays' shares, or any bank for that matter, I want to see a real "buck stops here" mentality.

Bank of America (NYSE: BAC  ) , Citigroup (NYSE: C  ) , and JPMorgan (NYSE: JPM  ) are all also potentially in line to get slapped by regulators for playing foul with LIBOR. That's a big shoe waiting to drop, and I can't imagine any investor being overly excited about jumping in its path. In fact, I think there's enough work left to do at all of the big banks that investors are better off giving them all a miss.

Of course, if you like to live dangerously, then check out the Motley Fool's new premium report on Bank of America. While I've highlighted one piece of trouble the bank is facing, the report gives you all the strengths and obstacles that investors need to be aware of. Click here to sign-up today.

Fool contributor Andrew Marder owns shares of Barclays PLC (ADR). The Motley Fool owns shares of Bank of America, Citigroup Inc , and JPMorgan Chase & Co. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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