US energy regulator orders Barclays to pay £299m fine

Penalty for attempting to manipulate electricity market comes hours after Tushar Morzaria is appointed as financial director

Barclays and four of its power traders have been ordered to pay a total of $453m (£299m) in fines by the US energy watchdog, which accuses the bank of attempting to manipulate the US electricity market.

The fines were announced just hours after the bank had named a new finance director. First announced last October, the fine by the Federal Energy Regulatory Commission (FERC) relates to allegations for the two years to December 2008.

The FERC told Barclays it had to pay a $435m fine to the US treasury within 30 days; one of its traders must pay a $15m fine, and three other traders $1m each, according to an 86-page order issued on Tuesday night. The bank must also give up $34.9m in profits which will to be distributed to low-income homeowners in California, Arizona, Oregon and Washington to help them pay their energy bills, it said.

"If Barclays and the traders do not pay the penalties assessed by FERC, then FERC may seek affirmation of the penalties from a federal district court," the regulator said.

Barclays said: "We are disappointed by the action FERC took today. We believe the penalty assessed by the FERC is without basis, and we strongly disagree with the allegations made by FERC against Barclays and its former traders in the FERC's order assessing civil penalty. … We believe our trading was legitimate and in compliance with applicable law. The Order Assessing Civil Penalty is by its very nature a one-sided document, and does not reflect a balanced and full description of the facts or the applicable legal standard. We have cooperated fully with the FERC investigation, which relates to trading activity that occurred several years ago. We intend to vigorously defend this matter."

Barclays is also facing another multimillion-pound bill to lure its new finance director, Tushar Morzaria, across the Atlantic from a senior role at a US bank.

Barclays said it was disappointed by the action taken by the FERCMorzaria is to receive a yet-to-be-disclosed relocation fee to move to London from New York to take up the key boardroom role, which could potentially pay the 44-year-old more than £6m a year in salary and bonuses.

In addition the bank, which has embarked on a strategy to become the "go to" bank in the wake of the £290m fine for Libor rigging, will buy Morzaria out of any long-term awards granted by his employer, JP Morgan Chase. Barclays did not disclose the value of the latter but they will be replaced with new awards of Barclays shares that will be disclosed by the bank at a later date and are likely to run to millions of pounds.

The accountant, who was born in Uganda and whose family moved to the UK in 1971, is replacing Chris Lucas who announced his retirement in February and remains under investigation by the City regulator into the way disclosures were made about the bank's 2008 cash call.

Morzaria will receive a salary of £800,000 plus an annual award of shares of potentially 250% of his salary – some £2m – as well as a longer-term bonus scheme under which he can receive up to 400% of his salary – up to £3.2m which would pay out over three years. He will also receive 25% of his salary – £200,000 – in cash in lieu of his pension.

The bank said that deferred and long-term awards which Morzaria forfeits as a result of accepting the role at Barclays "will be replaced with a Barclays share award of equivalent value to the forfeited awards which will vest over the same time period (as closely as possible) as the forfeited awards".

His appointment comes amid an overhaul of the top management team at Barclays in the wake of the Libor-rigging scandal which has led to the departures of the chairman Marcus Agius, chief executive Bob Diamond, chief operating officer Jerry del Missier and the head of the investment bank Rich Ricci.

Antony Jenkins, promoted from running the retail bank after Diamond quit, said he looked forward to working with Morzaria.

"He will bring a welcome new perspective to what is a pivotal role," said Jenkins, who also thanked Lucas for his tenure at Barclays, which began in 2007 just as the banking crisis took hold. Morzaria's experience in investment banking should complement Jenkins's background in retail banking.

Morzaria is expected to start working at Barclays in autumn 2013 but will have a long handover period with Lucas. He will not join the board until January 2014 while Lucas, who has health problems which have not affected his ability to do his job but had a bearing on his decision to retire, will remain in post until the end of February 2014.

At present Morzaria is chief financial officer, corporate and investment banking at JP Morgan Chase, which last year was embroiled in the "London Whale" trading scandal where $6bn (£4bn) of losses were caused by London traders.

Morzaria did not work in the division where the losses occurred. He has worked in various roles since 2005 and been based in New York since 2009. Before that he worked at Credit Suisse, JP Morgan and SG Warburg after starting his career at the accountants Coopers & Lybrand Deloitte.

Morzaria, who has two children, said he was looking forward to returning to the UK. "I am excited at the opportunity to be part of the leadership team which will deliver on the promised change in performance and culture," Morzaria said.

His former bosses at JP Morgan sent a memo to staff praising his "analytical ability, combined with calm, steady demeanour".

Article Source : http://www.guardian.co.uk

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Bank of England alerts watchdog over market rigging fears

Traders may have tried to rig price paid for government bonds in a quantitative easing auction, Treasury committee hears

The City watchdog is investigating the possibility that traders tried to rig the price that the Bank of England paid for government bonds in a quantitative easing auction, it emerged on Tuesday.

Paul Fisher, the Bank of England's executive director for markets, revealed in testimony to the Treasury select committee that the Bank had refused to buy one particular government bond – known as a gilt – at one of its regular "reverse auctions" in October 2011, because it feared there had been an attempt to manipulate the market.

"The auction went ahead, but we didn't allocate any purchases to one particular bond that was being offered to us, whose price had gone up very substantially in the market that morning, against the run of the market." He added that the Bank had been sufficiently concerned to refer the case to the Financial Services Authority – which was succeeded in April by the new regulator, the Financial Conduct Authority. News of the investigation follows a series of high-profile scandals over shady practices in the City.

Bank of England refused to buy one particular government bond over concerns there had been an attempt to manipulate the market.Three brokers have been charged over allegations of rigging the key interest rate Libor, while the FCA is also studying claims that energy trading firms sought to rig the wholesale gas market.

Fisher said there had also been several other occasions when the Bank had been sufficiently concerned about the behaviour of certain traders in the market to demand an explanation from them.

Andrea Leadsom, the Conservative MP whose questioning prompted Fisher to reveal the investigation, said it would be, "an ultimate irony, not to mention a public outrage," if bankers had tried to fix a process that was partly aimed at stabilising the financial system. Fisher agreed that, "if that was what they were doing, it would be thoroughly reprehensible".

Since QE was launched in March 2009, the Bank of England has bought a total of £375bn-worth of gilts, using electronically-created money, through so-called "reverse auctions", where bondholders such as banks compete with each other to sell their bonds to Threadneedle Street.

The FCA made no comment, but MPs are expected to press the regulator's chief executive Martin Wheatley about the investigation when he appears before the committee in the autumn, if no public announcement has been made by then about the outcome.

Fisher appeared before the committee – with Robert Stheeman, the chief executive of the government's Debt Management Office – to discuss the merits and challenges of QE. Fisher conceded that extricating the Bank from the unprecedented policy would be "the biggest challenge we will have had for 50 or 60 years". But he reinforced market expectations that such a change was some way off.

News on Tuesday that inflation had risen to its highest rate in more than a year posed further challenges for the Bank as it considers whether to extend QE in the face of a fragile economy. Official data showed inflation hit 2.9% in June, less than the 3.1% level that would have forced the governor Mark Carney to write an explanatory open letter to the chancellor, George Osborne. But with wage growth at just 1.3%, the rise in the cost of living means pay continues to fall in real terms.

The TUC said that Britain's workers are suffering the most protracted squeeze on their incomes since the long depression of the 1870s. Its calculations based on Bank of England data suggest real wages have now fallen for 40 months. The only time they fell for a longer was from 1875 to 1878.

The TUC's general secretary Frances O'Grady said the rise was "further bad news for households and the wider economy".

Article Source : http://www.guardian.co.uk

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UK unemployment expected to fall as nascent recovery feeds through to jobs

Economists expect claimant count to fall by 8,000, while Bank of England minutes will shed light on MPC's decision making

The number of people out of work and claiming benefits in the UK is expected to have fallen again last month as the economy's nascent recovery feeds through into the jobs market.

Official labour market data due at 9.30am on Wednesday will show an 8,000 fall in the claimant count in June, according to a Reuters poll of economists, while the unemployment rate for May is expected to remain at 7.8%.

Expectations for an improvement, at least on some measures of the labour market, follow a range of surveys suggesting companies are tentatively hiring new staff as the economy show signs of recovery.

Howard Archer, economist at IHS Global Insight, said: "The latest employment and unemployment data show improvement after the jobs market faltered early on in 2013. We expect further labour-market improvement to be evident in the figures out on Wednesday, supported by recently healthier economic activity.

"We now expect unemployment to be broadly stable over the next few months, before starting to edge lower from the end of 2013."

He predicted employment in the private sector would gradually pick up but that would be offset by an expanding labour force and further job losses in the public sector.

The UK unemployment rate is expected to stay at 7.8%. PhotographThe thinktank Capital Economics is less optimistic than the consensus on the drop in claimant count, expecting a fall of 5,000 in June after a fall of 8,600 in May. It is also cautious about earnings growth, forecasting an annual pace of 1.5%, just above the median forecast for 1.4%.

"With unemployment still high and productivity growth weak, underlying wage growth probably remained subdued," it said in a preview of the data.

That wage growth contrasts with a retail price rate of inflation of 3.3%, according to official data on Tuesday, meaning real wages continue to fall. The TUC says workers have now suffered falling real wages for more than 40 months – the longest lasting squeeze since 1875-1878.

Separately at 9.30am on Wednesday, the Bank of England releases the minutes from new governor Mark Carney's first monetary policy meeting, when rates were held at 0.5% and there was no change to quantitative easing (QE). The minutes will sum up the discussion and show how the nine committee members voted.

On the whole, economists expect the vote against more QE in July to have been seven members to two, compared with 6-3 at King's final meeting in June when he joined Paul Fisher and David Miles in calling for £25bn more in asset purchases.

Although Carney's first policy meeting ended as expected with interest rates pegged at their record low and no further QE on top of the £375bn so far, he still surprised markets with a statement alongside the decision.

The MPC used the release to say that there was no need for the recent sharp increase in yields on government bonds, which would indicate that interest rates were due to rise. It was only the sixth time in its 16-year history that the MPC had issued a statement alongside a decision to leave policy unchanged.

Article Source : http://www.guardian.co.uk
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