Barclays identified potential money laundering linked to currency transactions at its business in South Africa, where the British lender plans to wind down its investment.
Absa Bank Ltd., the South African subsidiary of Barclays Africa Group Ltd., "has identified potentially fraudulent activity by certain of its customers using import advance payments to effect foreign-exchange transfers from South Africa to beneficiary accounts located in Asia, the U.K., Europe and the U.S.," the London-based bank said in its annual report on Tuesday.
"The group is conducting a review of relevant activity, processes, systems and controls" and has made regulators aware of the of the suspected wrongdoing, Barclays said.
Meanwhile, Barclays Plc's investment bank swung to its first quarterly loss in at least two years, hurt by a drop in equities revenue, the London-based bank said in a news release Tuesday. The unit also warned of potential first-quarter weakness. Profits fell at the overall company, which announced a restructuring.
The laundering investigation is a setback for new Chief Executive Officer Jes Staley, who is trying to draw a line under a string of scandals including the bank's involvement in foreign-exchange manipulation and Libor rigging.
Barclays was fined 10 million rand ($640,000) in 2014 after South Africa's central bank found deficiencies in its controls to combat money laundering and terrorist financing. The lender said Tuesday it will sell down its 62% stake in Johannesburg-based Barclays Africa over the next two to three years.
Maria Ramos, chief executive officer of Barclays Africa, said on a call with reporters that the probe isn't linked to a wider investigation into whether banks including Barclays colluded to rig the rand, and that it's too early to give any further information.
The bank also said the Portuguese Competition Authority is investigating whether Barclays infringed competition laws by exchanging information about retail credit products with 14 other banks over 11 years. Barclays said it's cooperating with the investigation.
Barclays is also among global banks being probed by the Securities and Exchange Commission and the U.S. Department of Justice in relation to its hiring practices in Asia.
Global banks' hiring practices have come under scrutiny after the U.S. opened an investigation in 2013 into whether JPMorgan Chase violated anti-bribery laws by employing children of China's elite. Banks are being probed for giving jobs to candidates related to powerful Asian business leaders and government officials in order to generate business in corporate dealmaking. No one has been charged with any wrongdoing.
Barclays paid 1.5 billion pounds ($2.1 billion) for rigging currency markets last year, following a 290 million-pound penalty in 2012 for manipulating benchmark interest rates. The bank remains under investigation in Britain for its 2008 capital raising from Qatari investors, and the U.S. is probing allegations of misconduct tied to its dark pool stock-trading venue.
In a letter to shareholders, Barclays Chairman John McFarlane said that "excessive" regulatory fines had forced the bank to shrink its operations, reducing its support for the U.K. economy.
The societal costs of excessive penalties is very real," McFarlane wrote. "A 50-million-pound fine or penalty is the equivalent of employing 1,000 fewer employees, closing 100 small regional branches, or foregoing the capacity to lend over 500 million pounds to small businesses or consumers."
Tough 4Q, Warning on 1Q
Fourth-quarter adjusted pretax profit at the overall company, including restructuring costs, fell 56% to 247 million pounds ($344 million), according to public filings. That missed the 519 million-pound average estimate of five analysts surveyed by Bloomberg.
Trading in the stock was temporarily halted as the shares dropped as much as 11%. Analysts at the presentation questioned Staley on his outlook for profit and capital as he maintained that the bank's future is "bright."
"Look at your stock price, and what it is telling you is no one is believing your ‘jam tomorrow' capital story," Chintan Joshi, a bank analyst at Nomura Holdings Inc., told Staley.
Staley also unveiled a new structure for the lender, splitting it into two divisions to comply with U.K. law requiring the separation of banks' consumer and investment-banking arms by 2019. The so-called U.K. ringfenced retail bank will have about 70 billion of risk-weighted assets, whereas the non-ringfenced business, called Barclays Corporate and International, is almost three times as large with about 195 billion pounds of assets, according to the news release. It will house the investment bank, wealth management and the U.S. and international cards businesses.
The investment bank posted a loss of 146 million pounds ($204 million) in the fourth quarter compared with a pretax profit of 35 million pounds in the year-earlier period. The unit's cost to income ratio, a measure of efficiency, soared to 109% from 97%.
"In light of current market conditions, and on the back of a particularly strong March in 2015, we do not expect as strong a performance for the whole of quarter one this year," Finance Director Tushar Morzaria said in the news release. Revenue in January and February was "broadly in line" with last year's performance at the unit, the bank said.
Income from all businesses fell in the quarter, with the exception of credit products rising 28% to 221 million pounds. Investment banking income, which includes fees earned from advising on mergers and acquisitions fell 13% to 456 million pounds, while income from its markets arm, which includes equities, credit and macro products slipped 11% to 917 million pounds.
European lenders have struggled to overhaul their securities divisions after volatile debt and equity markets eroded revenue and regulators toughened scrutiny of riskier activities. Since taking over in December, Staley has unleashed a fresh round of cuts at the investment bank, eliminating thousands of jobs and shutting operations across Asia to focus on the most profitable businesses in the U.S. and the U.K.
Barclays said earlier this month that Tom King, head of the investment bank, will retire on March 4. Staley told journalists on a call on Tuesday that the securities unit will report to him until a successor is found, with the lender relying on King's management team "for right now."
At Barclays, the investment bank's operating expenses slipped 2.2% to 1.6 billion pounds in the fourth quarter from a year earlier, while revenue dropped 13% to 1.4 billion pounds. Litigation and conduct related costs fell to 6 million pounds from 33 million pounds. The return on average tangible equity was a negative 3.9%.
