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The Dark Pool Debacle Could Be The End Of Barclays PLC

There’s no doubt that Barclays’ (LSE: BARC) (NYSE: BCS.US) dark pool debacle has damaged the bank’s reputation.

Indeed, almost as soon as the New York Attorney General announced that he was pursuing a lawsuit against the bank, Barclays started to lose clients. And new information has come to light within the past few days, which highlights how quickly clients have turned their back on the bank.

Run for the hills

As it turns out, clients are Barclaysfleeing the Barclays’ dark pool. For example, the bank’s dark pool was the US’s second most active, in terms of volume, during the week before the lawsuit was announced. Now, the pool has fallen to 12th place in terms of volume, lagging all major rivals.

In terms of the volume of shares traded, the figures are staggering.

During the week before the allegations, Barclays traded 312m Tier One securities within its dark pool. The week after the allegations were made, trading volumes fell to 197m shares. Then the week after that, volumes collapsed to just 66m shares traded.

All in all, the volume of shares traded within Barclays’ dark pool has crashed by around 80% during the two weeks following the initial dark pool allegations.

Radical restructuring

This dark pool scandal has come at a difficult time for Barclays. The bank is currently undertaking a radical restructuring operation designed to half its exposure to investment banking.

Unfortunately, investment banking has become an unprofitable business for Barclays over the past year or so. In particular, first-quarter investment banking income fell 40% compared to the year-ago period. However, when the restructuring was initially announced, the bank could afford to make cuts to the business, as around two thirds of investment banking income came from 1,000 major clients.

So, Barclays’ plan was to cut exposure to the majority of its investment banking clientele, while focusing on a core client base. With a market leading position within the US, Barclays’ dark pool was a key part of this plan, it was a core part of Barclays’ investment bank.

But now, with dark pool business evaporating, Barclays’ long-term outlook could be seriously affected.

Indeed, even when the dark pool issue blows over, clients are going to find it hard to trust the bank. As Barclays has been shown to be misleading clients, it’s going to take a lot of work for the bank to convince customers that it can be trusted again.

Should you buy in?

Still, it's up to you whether you decide to buy, sell, or hold Barclays following this news. However, I'd strongly suggest you look a little closer at the company before making any trading decision.

However, placing a valuation on banks is never a simple task, and to help you conduct your own analysis, our analysts here at the Motley Fool have put together this free report entitled, "The Motley Fool's Guide To Banking".

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The results are surprising -- and revealing. This report is free and without obligation. To get your copy, click here.

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