Barclays PLC and Deutsche Bank AG Hit With Yet More Bad News

Barclays PLC (LON: BARC) is facing more pain overseas.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It seems as if the whole world is turning against Barclays (LSE: BARC) (NYSE: BCS.US) right now. After coming under attack for misleading investors about its dark pool trading venue, Barclays is now under investigation for helping hedge funds avoid billions in US government taxes. 

Complex products  Barclays

It was revealed yesterday that Barclays and the bank’s European peer, Deutsche Bank, had been helping hedge funds avoid US taxes. These revelations were made in a report published by the Senate permanent subcommittee, about investigations conducted by the Committee on Homeland Security and Governmental Affairs.

According to the report, the two banks were using a method called “basket options” to hide the trading activities of hedge funds. Simply put, these options allowed hedge funds to hide their trading profits in each banks own accounts. Hedge funds then collected a lump sum payout at the end of the year. 

As a result, hedge fund profits collected from these basket options were taxed as long term capital gains, rather than short term trading profits, which are taxed at a higher rate. 

Between 1998 and 2013, both Barclays and Deutsche are estimated to have sold 199 of these basket options, encompassing more than $100bn in trades. 

Unclear repercussions

As yet it’s unclear how much this will cost the two banking giants. The final sums are likely to be dependent on how much tax was avoided. But with regulators seeking to make an example of banks, both Barclays and Deutsche could be in for hefty fines. 

Indeed, French bank, Credit Suisse has recently been forced to pay $2.6bn for its involvement in US tax evasion, a charge which obliterated all of the bank’s profits for the second quarter. 

So, Barclays and Deutsche could be in line for multi-billion dollar fines. What’s more, the Senate subcommittee found evidence that suggests the two banks helped hedge funds skirt round US securities law, which governs levels of lending and leverage. 

The chairman of the subcommittee, Carl Levin has summed up the findings, which focused on two important issues.

“…[the banks were found to be assisting] tax avoidance by profitable companies and wealthy individuals, and reckless behaviour that threatens the stability of the financial system…”

Unfortunately, if it is found that Barclays and Deutsche have been threatening the stability of the financial system, fines levied on the banks could be crippling.

For Barclays, this news comes at a really bad time for the bank. These findings, along with the bank’s dark pool debacle, could be the beginning of the end for Barclays’ US arm. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »