Barclays' largest regulatory overhang looks to be entering its endgame. The UK bank is close to a deal with regulators for manipulating foreign exchange rates, Reuters reported on May 11. If forecasts of a 2 billion pound fine are accurate, investors' main sentiment will be relief. For Barclays, the big fear was that FX would be worse than Libor. Early settlement kept the fine for manipulating London Interbank Offered Rates to a relatively modest 290 million pounds ($455 million), but the reputational damage was horrendous.
For the currency market malpractice, Barclays took a different tack. In November, it stayed out of a group agreement with the US Commodity Futures Trading Commission and the UK's Financial Conduct Authority. Barclays wanted to settle simultaneously with New York's Department of Financial Services, which did not regulate the banks that settled then. It can be costly to irritate the DFS and its aggressive head Benjamin Lawsky. In 2014, BNP Paribas had to pay $9 billion for sanctions abuses. The French bank set a scary standard. It makes Barclays' expected 2 billion pound ($3.1 billion) fine look almost modest, especially as 2.05 billion pounds have been provisioned over the last three quarters. True, Barclays will pay more than the $661 million, $634 million, $668 million and $662 million respectively paid in November by UBS, Royal Bank of Scotland, Citi and J.P. Morgan to the CFTC and FCA, but those banks have not yet settled with the US Department of Justice and Federal Reserve. And for Barclays, the loss of a 30 percent early settlement discount is preferable to a BNP-style hit. An admission of criminal guilt might further tarnish Barclays' reputation.