Barclays plc (LON:BARC) chief executive Jes Staley is being investigated by UK regulators for “mistakenly” trying to unmask a whistleblower who raised concerns about the conduct of an employee at the bank.
The bank said in a statement that in 2016 Staley had believed that it was acceptable to identify the author of an anonymous letter, which raised issues of a “personal nature” about a senior member of staff.
Chairman John McFarlane explained that Staley was trying to protect a colleague who had experienced "personal difficulties in the past from what he believed to be an unfair attack”.
The chief executive was informed his actions were inappropriate and the board informed the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), which have launched a probe into Staley's behaviour and the bank’s whistleblowing procedures.
The bank also instructed external law firm, Simmons & Simmons LLP, to investigate the issue. It found Staley had honestly thought it was permissible to identify the author of the letter but that he made an error in becoming involved and failing to apply appropriate governance around the matter.
Subsequently, the board will make a "very significant compensation adjustment" to Staley's variable pay award as punishment.
"I have apologised to the Barclays board, and accepted its conclusion that my personal actions in this matter were errors on my part. I will also accept whatever sanction it deems appropriate,” Staley said in a statement.
“I will cooperate fully with the Financial Conduct Authority and the Prudential Regulatory Authority, which are now both examining this matter.”
McFarlane said he was "personally very disappointed and apologetic" that this situation had occurred as the company strives to operate to the "highest possible ethical standards".
The chairman said the author of the letter has accepted Staley's explanation and his apology for the incident. The author has kept their anonymity throughout the event.
McFarlane added that Staley continues to have the board's "unanimous confidence" and will support his re-appointment at the bank's annual general meeting (AGM) on 10 May.
The matter came to light earlier this year by an employee who raised concerns about the adequacy of the lender's whisteblowing procedures.
Barclays' past demeanours...
The news serves as another blow to Barclays as it continues to tackle legacy issues.
The US Department of Justice launched legal proceedings against the bank in December on allegations it deliberately mis-sold mortgage bonds.
The FCA has also last month reportedly re-opened its investigation into Barclays' 2008 emergency fundraising from Qatar after the bank handed over about 100,000 documents to the Serious Fraud Office. It comes despite Barclays already having paid a £50mln fine in 2013 for failing to disclose £322mln of fees for so-called “advisory services” it paid to the Qatari investors who invested in the bank.
Barclays has struggled to rebuild its reputation since its most prominent scandal in 2012 when it paid a £290mln fine to US and UK authorities for rigging Libor, which measures the rate at which banks can borrow from one another.
Two former Barclays traders, Stylianos Contogoulas and Ryan Reich, were acquitted in the case by a jury at Southwark Crown Court last week. Last year three of their former Barclays colleagues were convicted for conspiring to change the daily calculation of the Libor rate in order to improve their trading positions.
Staley needs to stay, says analyst...
"Given Barclays’ history of regulatory misdemeanours, most notably the high profile investigation into Libor rigging which led to former CEO Bob Diamond’s departure from the group, this latest revelation represents a very significant embarrassment for the board as it tries to rebuild the group’s reputation," said Shore Capital.
"As for Mr Staley, it remains to be seen whether the PRA and FCA come to the same conclusion as the board in allowing him to remain in his post, although we would assume that the sanctions proposed will have already been discussed with the regulators and should therefore help to mitigate this risk. It is possible the group may also be fined."
The broker said Barclays has made good progress under Staley, notably in the running off of non-core assets and rebuilding its capital base.
At the full year results in February, the bank reported a jump in pre-tax profit to £3.2bn from £1.2bn the prior year as it sold off non-core assets as part of a restructuring. The selling off of non-core units, resulted in a reduction of risk weighted assets (RWAs) of £22bn to £32bn. The lender plans to close its non-core units by 30 June, which will lower RWAs to £25bn.
The group also strengthened its capital buffers in 2016 with the common tier 1 equity ratio edging up to 12.4% from 11.4% a year earlier.
"To remove Mr Staley from his role at this juncture would be damaging to further operational progress, with an improvement in return on equity now the key area of focus," ShoreCap added.
"While Mr Staley’s reputation has undoubtedly taken a serious knock, we believe that it remains in the best interests of shareholders to keep him in the post of CEO and hence we recommend that they follow the board’s direction and vote in favour of his reappointment at the AGM in May.
The broker retained a 'hold' rating and target price of 215p.
Shares in Barclays fell 0.21% to 214.85p in early trading.
-- Adds details of case, background, share price reaction, broker comment --