Barclays Plc investors, blindsided by the bank’s $451.4 million regulatory fine for trying to rig benchmark rates, saw the stock drop 16 percent a day later. Other bank shareholders may be just as surprised.
Barclays, like other lenders that help set key rates for $360 trillion in securities, has given investors scant guidance on the liability they face for alleged market manipulation. More than a dozen banks are being probed by U.S., Asian and European regulators for collusion in setting interbank lending rates. The others have mirrored Barclays on minimal disclosure.
Barclays shareholders were notified of the Libor probe, while getting little information on how much money was set aside for potential fines and legal costs. First-quarter operating expenses for the firm’s investment bank rose 4 percent to 2.14 billion pounds ($3.3 billion), reflecting a 115 million-pound increase in provisions for legal and regulatory costs, partly offset by non-performance cost savings, the bank said in an April regulatory filing. The company didn’t specify whether any of the increase was due to Libor-related provisions.
“Specific disclosure on litigation reserves for any Libor suit settlements is completely lacking in any regulatory filings,” Portales’s Peabody said, referring to all banks. “My guess is that litigation reserves for civil suits from municipalities, class action suits, etc. are non-existent.”
“Even a 2- to 3-basis-point manipulation would have a large impact on the product and the investors in that product,” he said. A basis point is 0.01 of a percentage point.
Bank of America has said that as of March 31, costs from litigation and regulatory matters could be as much as $4.2 billion beyond its accrued liability. The firm said that it sets aside liabilities when losses are “both probable and estimable.” The bank hasn’t said whether Libor liability fell into that category. Bill Halldin, a spokesman for the Charlotte, North Carolina-based bank, declined to say whether it had.