This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
22 May 2015
Barclays announced a not insignificant £1.5bn in legal charges this week, pleading guilty and settling with regulators on both sides of the Atlantic, putting to bed months of shareholder uncertainty about how costly the slaps-on-the-wrist (they are but this I’m afraid, there will be more scandals – read on) would be for its role in rigging the $5 trillion/day global foreign exchange market. However, its share price rallied over 3% in response. Why you ask? Surely a big fine is bad news? Indeed, when unexpected. But this was far from it. And not when you have already set aside a monstrous £2.0bn. The upshot is that its legal provisions were conservative/aggressive (depending on which way you look at it). And investors factoring in a nice £500m write-back to Q2 profits on 29 July have helped the shares break-out to fresh 12-month highs 270p – the bulls hoping to see 2014 highs 298p again. Who said the banks only ever deliver bad legal news?
However, before assuming a line can be drawn under sector legal issues including LIBOR and FX rate rigging, PPI miss-selling, Sanction flouting, Money Laundering and Tax evasion, note a hidden mention in Barclays’ statement that part of its US payment ($115m) relates to it being the first UK bank to settle following a two year investigation into malpractice within the $500 trillion annual market for Interest Rate Swaps (derivatives; hedging instruments). The next big scandal? Likely. Peers involved? For sure. And we’ve yet to hear the end of investigations into precious metals price fixing too. Unfortunately, legal issues are here to stay. On the bright side, however, the sector volatility they bring about continues to offer buying and selling opportunities. Bring them on, I say. Next!
Enjoy another long Greek-end.
Mike van Dulken, Head of Research
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research
Comments are closed.