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Into the dark pool with Barclays

BILL BENFIELD explains the latest allegations of misleading practices surrounding the British banking giant

JUST in case readers thought that we were going soft on Barclays bank, or even more unlikely, that Barclays itself had done nothing questionable recently, New York attorney-general Eric Schneiderman has come to our rescue.

The British banking and financial services firm misled large institutional investors and other clients by falsely telling them it was taking measures to protect them from predatory high-frequency traders, New York’s attorney general alleged recently.

The allegations were contained in a securities fraud lawsuit announced by Schneiderman at a Manhattan news conference.

The complaint filed in the state Supreme Court portrays “a flagrant pattern of fraud, deception and dishonesty with Barclays clients and the investing public,” the attorney general said.

Barclays spokesman Mark Lane said that the bank was co-operating with the attorney general — as if there was any alternative.

“We take these allegations very seriously … the integrity of the market is a top priority at Barclays,” Lane said.

Oh, yes?

Here’s something we wrote almost two years ago — What Barclays says about Barclays.

“Corporate responsibility for Barclays is embodied by the concept of responsible banking.

“Responsible banking means making informed, reasoned and ethical decisions about how we conduct our business, how we treat our employees and how we behave towards our customers and clients.”

That’s from the company’s mission statement then and now.

But two years on, the New York attorney general is prosecuting a lawsuit that alleges Barclays deceived investors about its “dark pool,” an electronic trading operation intended to shield them from high-frequency traders who use sophisticated computer programmes. 

Schneiderman alleges the bank promoted a service it claimed was a “surveillance” system that would identify and hold accountable “toxic, predatory and aggressive traders.”

Instead, the service “was essentially a sham,” he says. 

“Barclays has never prohibited any trader from participating in its dark pool, regardless of how predatory or aggressive its behaviour.”

Information from former high-level insiders at Barclays and email evidence shows, according to New York, that Barclays was determined to raise profits by making its dark pool the largest on Wall Street.

To help reach that goal the firm “disclosed detailed, sensitive information to major high-frequency trading firms in order to encourage those firms to increase their activity in Barclays dark pool.”

The lawsuit also accuses the bank of misleading investors by telling them it would spread orders around to various trading exchanges based on performance. 

In reality, it says, the bank was routing the vast majority of trades, a hefty 75 per cent, to its dark pool.

The complaint even alleges that a Barclays executive was instructed to doctor a presentation to an institutional investor by lowering the figure to 35 per cent. The change was made over the executive’s protests and he later resigned, it says.

“Dark pools?” you may well ask. What in hell are they and why don’t we hear about them?

Well, they’re a little fiddle the money men operate among themselves and you don’t hear about them because they operate away from the light.

They are investment pools in which the bank says it’ll keep the more voracious elements out so the posh ladies and gents can have a little flutter without the embarrassment of rough traders.

There’s little supervision from public bodies, but the banks will keep a watch and ensure the rich get richer without inconvenience.

But like all the market modifications, where there’s capital and secrecy, there’s the sound of fiddlers fiddling and these dark pools are now attracting attention from the authorities.

However, back to the lawsuit, which asks the court to order Barclays to halt the behaviour and pay unspecified damages.

Well, just how much will it take to discourage Barclays?

You may remember that the bank agreed a $298 million settlement to help it avoid prosecution over accusations of altering financial records to hide breaking US sanctions in trades with Iran, Cuba, Sudan, Libya and Myanmar from 1995 to 2006.

You might also recall that current chairman Sir David Walker replaced Marcus Agius, who gave his resignation after Barclays was fined £290m by US and British regulators for manipulating the London interbank offered rate (Libor).

That’s the same chairman who launched a fighting defence of the bank’s decision to pay higher bonuses in the face of a shareholder revolt in May.

Sir David Walker got seriously bolshie, accusing shareholders of voicing their concerns over pay “at a very late stage.”

“Bonuses up, profits down. Not a headline we would have chosen,” admitted Sir David.

But “our business was attacked very aggressively by competitors, particularly in the US,” he said of a US bond trading desk where two-thirds of staff had threatened to leave.

Perhaps they should have, if only for their own peace of mind? Or, if they had anything to do with the “dark pool,” for ours. 

However, in the end they may have little choice, since its new strategy is set to cut more than a quarter of the staff in its investment banking arm.

Out of the current workforce of just over 26,000, 7,000 will lose their jobs. 

Incidentally, at the same time as the spat with shareholders was raging, Barclays agreed to pay $280m to resolve a lawsuit brought by the US Financial Housing Finance Agency and outstanding for several years. 

It followed allegations that the bank misled US housing finance bodies about the quality of loans in mortgage-backed securities.

And don’t forget the £26m it was fined by British regulators after one of its traders attempted to fix the price of gold.

That happened in June 2012, the day after the bank was fined that record £290m for attempting to rig Libor.

Barclays said that it “very much regrets the situation” that led to the fine — which seems to be a recurring theme.

Get caught out, sack someone for fiddling and express deep regrets.

But it’s only ever the fiddles they’re caught in that they regret.

So let’s return to the question of how much of a fine would deter Barclays.

It would have to be substantial, given what we’ve just reviewed in the bank’s murky and dishonest past.

But there’s a catch. It can’t be substantial enough to make the bank fail.

On November 4 2011, the G20 plus the European Commissions’s financial stability board released a list of 29 banks it considered “systemically important financial institutions” — financial organisations whose size and role meant that any failure could cause serious systemic problems. 

And prominent among them was — yes, got it in one — Barclays.

And there’s the problem. Because if it’s not going to kill, it’s not going to hurt.

It’s not going to hurt because Barclays, in common with all the big banks, is a serial offender.

Which means that for years it’s paid the fines and charges for one misbehaviour with the proceeds of another.

And as far as capitalist governments are concerned, if that’s the way it’s got to be, then so be it.

Capitalism needs Barclays as much as Barclays needs capitalism. And that’s how it should be — for them.

But we don’t need Barclays, and we don’t need capitalism. 

We’re just stuck with them until the transparently obvious fact sinks in.

They’re one and the same thing and the illusion of the one disciplining the other is part of the fiction that keeps the whole charivari going.

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