Barclays PLC and the scandal that has gripped news outlets around the world continue to make headlines as it was announced that bonuses are up from last year. This resulted in a slew of comments. Many were asking the same question: is Barclays failing its investors? To sum up the results, profits are down; yet the bank is still issuing big payouts.
Chief Executive, Antony Jenkins promised investors he would improve the bank’s standing, after it received a record £290 million fine in August 2012 for the role it played in the interest rates scandal.
To be fair, Barclays isn’t the only bank courting controversy. HSBC landed itself in hot waters, when it was caught laundering billions for Mexican “narco-terror cartels.” It reached a compromise, only escaping criminal charges by paying five weeks’ profits in fines and foregoing top-level bonuses.
The question remains: what exactly has Antony Jenkins done about Barclays PLC overall standing?
Well, the answer is two-part, quite a lot and not very much.
He is planning to boost capital through job cuts. The long-term plan involves further investing in online services, automating many of the bank branch teller jobs through mobile services and smartphone applications. It is estimated 7,000 jobs will be cut this year.
For his part, Antony Jenkins has waived his multimillion pound bonus, insisting that Barclays is in a much stronger position than it has been in for many years. However, share prices dropped 4 percent late Tuesday last week.
Jenkins’ measures don’t quite detract from the real issue at hand. It was reported that bonuses have risen to £2.4 billion in total. This represents an increase of £200 million or 10 percent from last year’s figure. This equates to roughly $330 million, if you convert British sterling to US dollars.
This increase occurred despite the fact profits have fallen by nearly a third. Obviously, any investor would have trouble doing the math. Is this another Barclays PLC scandal or do these bonuses represent a necessary evil to attract top talent to the bank? Jenkins argues it is the latter not the former.
In order to keep the very best talent at his bank, Jenkins must pay competitive rates. The CEO insists he is caught in the middle. He is simply paying the market rate. Yet, this argument has not fully persuaded critics. Some have asked who exactly is running Barclays; is it the owners or the executives?
In the corporate world, it’s not uncommon for the interests of management to be at odds with the interests of shareholders, but when you are talking about a difference of hundreds of millions of pounds, the discussion takes a sharp turn.
Although bonuses rose to a 10 percent increase, income at this section slid 9 percent from last year.
This discrepancy highlighted the broader problem of government regulation. Sky News noted that the topic of bank bonuses is fast becoming a “hot political potato” for the UK government.
However, this isn’t the only issue at hand. Experts say that further big fines could emerge all the way into 2015. Last year’s scandal involving the suspension of six foreign exchange traders is still looming over the bank’s reputation. The allegations of manipulation of the global currency market have the potential to match the Libor inter-trading scandal that occurred between 2005 and 2009.
Summarizing the events that led to the Libor scandal, BBC News said there was evidence that the bank attempted to manipulate dollar Libor and Euribor, known as the Euro Zone’s equivalent of the libor, in response to 257 requests from derivatives traders and other banks. The scandal wasn’t confined to the UK. It also extended to New York, Tokyo and external trading entities.
So when is it all too much? Stock is up 50 percent. For now, it appears Barclays PLC is safe from a full blown scandal erupting involving bonuses. However, the period between 2014 and 2015 could prove tricky for the bank, following further investigation and the backlash over job cuts. As the great adage goes, only time will tell.
By Simone Innamorati