Just when you thought things couldn’t get worse for investors in Barclays (LSE: BARC) (NYSE: BCS.US), they get far worse than you thought they could. Banking scandals seem to be stacked in an interminable queue, like airplanes at Heathrow.
Mis-selling PPI, gold manipulation, Libor, Euribor, interest-rate swaps, the Qatari bailout, energy fines, personal loans and now the notorious dark pool debacle… one crashes into one another these days. Investors have shrugged off previous scandals, but now there are signs they have had enough. Trading at 209p, Barclays is 30% off its 52-week high of 297p.
Billion dollar fines
The size of some of the fines is proving a growing drain on the banking sector generally, scuppering efforts to restore capital ratios. Note the $9 billion fine US regulators imposed on BNP Paribas for violating sanctions against Sudan, Cuba and Iran. And there are no signs of this easing up, according to data specialists Anomaly42. It warns that recent finds for breaking anti-money laundering rules are the “tip of the iceberg”, and global banks could face fines of up to another £250 billion by 2020.
Legislators and regulators around the world are using financial automation to scan for financial crimes, it says, forcing banks to employ armies of compliance officers. This is a significant drain on resources, posing a commercial as well as a reputational threat. If recent experience is anything to go by, British banks will be right in the firing line.
Dirty Laundry
Few of the big banks are immune to mis-selling and money laundering accusations. It seems go with the territory. Last year, the EU fined eight banks, including Barclays and Royal Bank of Scotland Group (LSE: RBS), for rigging Euribor and the Yen. Swiss group UBS, Deutsche Bank, US giants JPMorgan Chase & Co and Citigroup also took a hit.
The UK authorities are also determined to inflict competition on the big banks. Barclays, RBS, Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) and HSBC are now being targeted by the Competition and Markets Authority, which has just announced a full-blown investigation into personal current accounts, in a bid to shrink their 80% share of the UK personal banking market.
Meanwhile, the PPI compensation scandal still grinds on, with Barclays, RBS, Lloyds and HSBC expected to disclose a combined bill of more than £20 billion when they publish their half-year results. And they are still setting aside another £1.5 billion for future claims.
Fly Or Buy?
Investors in Lloyds have largely shrugged off these worries, its share price is up a mighty 150% in the last two years, but even it has now gone into decline. Trading at around 73p, it is 16% below its 52-week high of nearly 87p. At 320p, RBS is also around 16% of its year-high. Its share price is 20% lower than five years ago. In that time, the FTSE 100 grew 48%.
Barclays, RBS and Lloyds have sucked in contrarian investors since the financial crisis, and some will have made fortunes by timing their entry correctly. Most will taken a repeated pummelling. Things have got so bad, that some analysts are suggesting that investors should give up on the banks altogether. You might see that as the ultimate buy signal.
