Barclays faces record £290m penalty
British bank suffers another hit to its battered reputation as it confronts huge costs for alleged US energy market manipulation
Jill Treanor, city editor
The Guardian, Wednesday 31 October 2012
Barclays bank has endured a torrid year having been caught up in a number of financial scandals.
Barclays took another major hit to its already bruised reputation last night when a US regulator threatened the bank with a record $470m (£290m) penalty for allegations that it attempted to manipulate the US electricity market.
After the London market had closed, the Federal Energy Regulatory Commission announced the scale of the fine – $435m, plus a $35m order to disgorge alleged profits made by the bank – for the alleged offences which are supposed to have taken place between 2006 and 2008.
Barclays had warned earlier in the day that it faced a potential penalty for the alleged movement of Californian electricity prices when it reported that it had made a loss in the third quarter of 2008.
The bank’s new chief executive, Antony Jenkins, said the bank would defend any proposed penalty by the regulator, which has given the bank 30 days to respond and prove why it should not be fined.
The Washington-based regulator is also proposing fines on four individuals who worked for Barclays at the time. In April the Ferc had warned it was investigating the bank and the four individuals for allegedly buying and selling electricity in big enough quantities to affect the price of complex derivative positions.
The four traders – Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith – also have 30 days to prove why they should not face civil penalties after the regulator said the actions had led to losses of around $140m for California and other US states.
The regulator, given extra powers after the Enron trading scandal, alleged that traders had “propped up” the market.
The fresh embarrassment for Barclays comes barely three months after Bob Diamond resigned as chief executive in the wake of another record fine, this time for manipulation of the key benchmark interest rate, Libor.
The allegations from the Ferc, which shed some light on the complexities of energy trading, single out four locations – Columbia, Palo Verde, South Path 15 and North Path 15 – that were said to have seen transactions that benefited the bank’s positions on the IntercontinentalExchange.
Unlike the Libor case where Barclays agreed to settle the allegations, the bank now appears to be preparing to put a case in the show-cause order issued late last night. If the fine is imposed by the regulator, it would be the largest it has ever levied, and be regarded as evidence that the Ferc is attempting to get tough on attempts to manipulate energy prices. Other banks facing penalties include JP Morgan and Deutsche Bank.
The order does not put Barclays side of the argument but accuses the bank of a “coordinated scheme” to manipulate prices in electricity prices and comes as the bank’s new chairman Sir David Walker takes over the key boardroom role today.