The major British bank, Barclays, announced its Q3 results in an interim management statement on 30 October, 2013, showing a considerable decline in both profits and revenues in its Investment Bank Fixed Income, Currency and Commodities (FICC) business. Additionally in the interim statement, Barclays disclosed that it had received enquiries from certain regulatory authorities investigating possible attempts to manipulate certain benchmark currency exchange rates, and that it is cooperating with those regulators.
Barclays operates as an institutional market maker in currency exchange trading, providing liquidity to FX brokers. Overall company profits slumped to £1.39 billion from £1.87 billion , a 26% decrease compared to Q3 2012. Income in its FICC unit dropped by 44% to £940 million, from £1.68 billion in Q3 2012. In the statement, the bank explains these “significant” decreases as mainly reflecting lower activity in currency bonds, driven by “a decrease in client flow” across the FICC businesses, due to the impact of market uncertainty around central banks lessening of quantitative easing programs. The bank though, didn’t note FX trading as cause for the FICC division weakness, and additionally emphasized that its Asia business benefitted from improved currency income.
As Forex Magnates reported at the start of the month, an international investigation is underway since the Swiss financial watchdog FINMA announced it is looking into allegations of FX manipulations by multiple financial actors. More recently, regulators like the UK’s Financial Conduct Authority and legal authorities like the American Federal Bureau of Investigation started their own investigations into the matter. UBS, Deutsche Bank and RBS have all already commented on the investigation. The investigation seems to have been initially focused on a chat group, where dealers sent instant messages over their Bloomberg terminals for a period of three years.
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In the bank’s interim management statement, Barclays confirmed it was aware that various regulatory and enforcement authorities are investigating FX trading, including “possible attempts to manipulate certain benchmark currency exchange rates.” Barclays says it has received enquiries from some of these authorities and is reviewing its FX trading practice covering the last several years, and cooperating with the relevant authorities.
In the statement, Barclays claimed it is not possible at this stage to predict the impact of these investigations on it. Barclays stock price reacted by going up following the announcement as, despite this particular issue, its earnings beat analysts’ expectations.