On Thursday morning, alongside its full-year numbers, the FTSE 100 lender revealed that the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) were both investigating transparency issues over Staley’s professional relationship with disgraced financier Jeffrey Epstein.
After Barclays was made aware of the historical link, Staley gave an explanation of his relationship with Epstein to certain Barclays executives and the chairman last year, the bank said, confirming that “he has had no contact whatsoever” since he started at the UK bank.
The professional relationship began in 2000 during his days at JPMorgan’s private bank, where Epstein was a client.
The New York Times has reported that Epstein referred “dozens” of clients to Staley at JP Morgan and that Staley visited Epstein in prison when he was serving a sentence between 2008-09 for soliciting prostitution. Staley also went to Epstein’s private island in 2015, Bloomberg reported.
Staley, whose pay packet for the past year was hiked to £5.9mln from £3.4mln, told reporters on a call on Thursday that the relationship “tapered off significantly” after he left the Wall Street bank in 2013.
He said the relationship ended in the “middle to fall of 2015”, saying there was no contact after he became chief executive of Barclays in December 2015.
“I thought I knew him well, and I didn’t. I’m sure with hindsight of what we all know now, I deeply regret having had any relationship with Jeffrey Epstein,” he said.
Speaking in a televised interview, he said the FCA investigation is “focused on transparency — whether I was transparent and open with the bank and with the board with respect to my relationship with Jeffery Epstein.
“And indeed it's clear in my own mind that going all the way back to 2015 I have been very transparent with the bank and have been very willing to discuss the relationship I had with him.”
The investigation by the FCA and PRA, which started last year and remains ongoing, is examining Staley’s “characterisation to the company of his relationship with Mr. Epstein and the subsequent description of that relationship in the Company's response to the FCA”.
Barclays said it believed the CEO had been “sufficiently transparent” and so the board is happy to keep him on.
Analysts at Goodbody said: “The regulatory review is bound to raise questions regarding potential repercussions for Staley. This could put Barclays on slightly weaker ground in the context of any renewed push on the part of the activist shareholder.”
In light of Staley’s history with the regulators, Market analyst Neil Wilson at Markets.com said, “it’s looking like the cat may be running out of lives… I wonder if he can survive this”.
This is because it is the second time that the FCA has investigated Staley, having fined him £642,000 two years ago for attempting to unmask a whistleblower who he said had tried to “assassinate” the character of a senior executive, Tim Main, a former colleague of his from JP Morgan.
The FCA said at the time that Staley had improperly demanded that the Barclays security team identify the author of the anonymous letter sent to the bank.
Barclays, which docked his pay by £500,000, was also fined US$15mln by the New York State Department of Financial Services for the “shortcomings in governance, controls and corporate culture”.
Russ Mould, investment director at AJ Bell, said: “It is unfortunate for Barclays that a better-than-expected set of full year results and fairly upbeat guidance is being overshadowed by an FCA probe”.
The results, while continuing many positive themes, were not entirely without blemish, Mould noted.
Perhaps most significant was that Barclays’s corporate and investment bank (CIB) was still generating pretty weak returns relative to other parts of the business.
“This adds grist to the mill for activist investor Edward Bramson who has been pushing through his Sherborne Investors vehicle for a sale of this division,” said Mould.
“Running an investment bank requires a lot of capital and earnings can be volatile. While Sherborne remains a significant shareholder this issue is unlikely to go away, particularly given Barclays’ cost to income ratio compares unfavourably to the peer group.”
Another mishap was the board’s decision drop its 10%-plus return on equity target for 2020, while a lower risk loan portfolio led to tighter net interest margin.
Other analysts were more glowing, with UBS hailing the bank for beating profit and capital forecasts.
Those at Hargreaves Lansdown highlighted the good growth in loans, falling operating costs and stable levels of bad debt in the UK business.
They had a different reading on the CIB: “An upbeat set of numbers from the investment bank, not always a star performer, is the icing on the cake and lends substance to Barclays claim to be a truly universal bank.”