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Exclusive: British banks' turnaround plans frustrated by U.S. justice delays

Stock MarketsAug 08, 2017 08:00AM ET
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© Reuters. The logo of Barclays bank is seen at its office in the Canary Wharf business district of London

By Lawrence White

LONDON (Reuters) - Legal and investigative delays at the U.S. Department of Justice are thwarting efforts by three of Britain's biggest banks to rehabilitate themselves after the global financial crash and other problems, the banks' chief executives have said.

Like their global competitors, Britain's top banks have spent billions of dollars in fines, settlements and restructuring costs to deal with legal and financial fallout from the 2008 crisis.

For Barclays (L:BARC), RBS (L:RBS) and Standard Chartered (L:STAN), hopes that their unresolved cases in the United States can be settled this year have been clouded by delays in appointing key staff at the DoJ since Donald Trump became president.

A spokesman for the Department of Justice declined to comment.

The specter of the U.S. investigations is causing the banks problems including depressed share prices, the need to hold billions of dollars in provisions against expected fines, and issues in Bank of England stress tests, analysts said.  

Barclays (L:BARC) is being sued by the DoJ for alleged mis-selling of mortgage-backed securities in the run-up to the financial crisis, while Royal Bank of Scotland (L:RBS) is under investigation over similar allegations.

Standard Chartered is being investigated over whether it continued to violate Iran-related sanctions after 2007, in violation of a deferred prosecution agreement between the bank and the DoJ that covered such activity prior to 2007.

"We know there is an investigation open, and it feels to us like they are exploring all the avenues, so we don't have any certainty as to when this gets resolved," Standard Chartered Chief Executive Bill Winters told Reuters in an interview in London.

Progress on the banks' cases in the United States slowed following Trump's election victory last November, with key roles at the Justice Department unfilled, executives at the lenders said.

The Trump administration has struggled to fill hundreds of open positions at senior levels at Justice and other departments.

In recent weeks, further doubt has been thrown on staffing at the top of the Justice Department following Trump's repeated criticisms of its head, Attorney General Jeff Sessions, whom the president branded "very weak" in tweets last month.

TIME OF CRISIS

At StanChart, a program of restructuring, including more than 15,000 job cuts and a $5.1 billion capital raise, has allowed Winters to restore the balance sheet in the two years since he took over at a time of crisis for the bank.

However, efforts to restore the reputation of the bank, which once used the slogan "Here for Good", remain clouded by the open DoJ investigation into one of the darkest chapters in StanChart's more than 160-year history.

In 2012, StanChart settled a U.S. probe into violations of Iran-related sanctions between 2000 and 2007, only for the investigation to be reopened in 2014 as prosecutors sought to show the bank had continued those violations after 2007.

So far this year, StanChart has not been able to offer any update on progress in the probe.

Some European banks were able to settle outstanding U.S. legal cases in the weeks between Trump's election victory last November and his inauguration in January.

Deutsche Bank in December agreed to a $7.2 billion settlement with the Department of Justice over the bank's sale and pooling of toxic mortgage securities in the run-up to the financial crisis.

RBS Chief Executive Ross McEwan said on Friday it was possible his bank would not be able to settle a similar case with the DoJ this year.

The case is the state-backed bank's largest outstanding problem and a major barrier to its being able to resume paying dividends and exit government ownership, McEwan said.

"There is a chance we may not get it done this year, but that depends on when those conversations (with the DoJ) start," he said.

Barclays has chosen to contest a similar DoJ lawsuit, unlike other European banking rivals which have agreed settlements rather than fight their cases.

Barclays Chief Executive Jes Staley last month told reporters he did not know when his bank would be able to resolve its lawsuit with the DoJ.

Trump has faced criticism for the slow pace of nominations of key officials in his administration, as well as the pressure he has placed on Sessions.

One of the bank chief executives, who did not wish to be named criticizing the DoJ, said delays in filling key roles at the department had played their part in the slow progress towards resolving issues with British banks.

"There's nobody home," the CEO said.

Exclusive: British banks' turnaround plans frustrated by U.S. justice delays
 

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