Between a FERC and a hard place
Barclays’ energy-trading spat is shaping up to be a real no-win situation for the UK bank. The U.S. Federal Energy Regulatory Commission (FERC) decided on July 16 not to budge from its contention that Barclays and four of its traders should pay a combined $453 million in fines for manipulating energy prices. Barclays strongly denies the charges. But even if the bank wins its case in court, the victory will be Pyrrhic.
It’s not surprising that Barclays continues to face down the FERC, which first made its charges last October. The fines are on the same scale as the bank had to fork out following June 2012’s ruling that its traders had tried to manipulate the London Interbank Offered Rate. It was not fun to pay out so much money, but Barclays had to admit it was guilty of Libor manipulation.
This case, the bank insists, is quite different. Manipulation in electricity markets is carefully defined, and Barclays is confident that its traders did not break the rules in trading power prices in California and other western states. Any profits were legitimate.
Barclays could be a victim of regulatory persecution. Executives at many non-American banks have been whispering that U.S. regulators are biased against them. But even if FERC is nationality-blind, power trading is a legitimate business, and wrongdoing is hard to prove.
But win or lose, Barclays has a problem. Chief Executive Antony Jenkins, who was appointed post-Libor, has repeatedly told employees and the world that he will change the racy, investment bank-driven culture of Barclays prior to the financial crisis. The best way to do this is to disassociate itself from anything that even looks like Libor, and to settle any lingering cases swiftly.
A public trial fails on both counts. It could drag on for years, and any negative publicity will undercut Jenkins’ assurances that his bank is now a good corporate citizen. Observers will also be reminded of the years that the bank traded power for its own account, an activity of no obvious social benefit. And in the end, Barclays might not win.