March 29, 2018 / 4:44 PM / a year ago

Breakingviews - Barclays settlement fixes one of several headaches

The Barclays headquarters building is seen in the Canary Wharf business district of London, Britain February 6, 2013. REUTERS/Neil Hall

LONDON (Reuters Breakingviews) - Barclays boss Jes Staley has been made an offer he couldn’t refuse. The lender unexpectedly agreed on Thursday to pay the United States $2 billion to settle allegations that it mis-sold mortgage securities more than a decade ago rather than going to court. That still leaves Staley with some other big problems on his plate.

The settlement is a relatively good deal. First, it is affordable. The hit to earnings will depress the lender’s common equity Tier 1 ratio by 45 basis points, to 12.85 percent. That is below Barclays’ target of 13 percent but still healthy. Second, the bank is paying a lot less than investment banking rivals did for similar cases. Credit Suisse stumped up $5.3 billion, while Deutsche Bank paid $7.2 billion. Third, the settlement should reduce the uncertainty that has weighed on Barclays’ share price, which has underperformed the Thomson Reuters UK Banks Index and the broader STOXX Europe 600 Banks Index by 8 and 6 percent respectively over the past year.

But it’s premature for Staley to celebrate. He is still waiting for the outcome of an investigation by UK regulators into his attempts to out a whistleblower in 2016. Barclays’ board has already cut his bonus. Britain’s Financial Conduct Authority could yet force him to stand down.

Assuming Staley stays, he will have to improve the performance of the bank’s misfiring trading arm which accounted for roughly a fifth of revenue last year. Combined with the corporate bank, the division managed a puny 1.1 percent return on tangible equity, well below its likely cost of capital.

Recent market volatility will probably lift revenue and help Staley achieve his goal of more than doubling this year’s dividend payout to 6.5 pence per share. Barclays shares trade at 0.8 times tangible book value. At least the DOJ settlement takes Staley a step closer to closing that discount.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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