Barclays will contest a record US$453 million (HK$3.5 billion) fine imposed by a US energy regulator against the British bank and four of its power traders, setting up a likely federal court battle.
The fines, which were upheld by the Federal Energy Regulatory Commission (FERC) on Tuesday, confirm the top US energy cop will pursue its most ambitious market manipulation case to date.
For Barclays, the sanction is the latest of a series of scandals that include a US$450 million fine by US and UK regulators for rigging global benchmark interest rates last year.
But unlike its settlement over Libor (London Interbank Offered Rate), where the bank accepted wrongdoing, it has fought the FERC allegations from the start.
FERC first proposed the fines in October last year over alleged manipulation of Californian and other western power markets by the British bank in the last decade.
Tuesday’s ruling said FERC commissioners agreed with earlier findings by regulatory staff, which said the bank deliberately lost money in physical power markets to benefit its financial positions between 2006 and 2008, and that the Barclays traders knew their activity was unlawful.
FERC also ordered Barclays to hand back US$34.9 million in “unjust profits” to low-income home energy assistance programs in Arizona, California, Oregon and Washington to benefit electricity customers there.
“We have cooperated fully with the FERC investigation,” Barclays spokesman Marc Hazelton said in a statement on Tuesday. “We intend to vigorously defend this matter.”
The case will likely now move to a federal court.
The bank said on Wednesday it believed its trading “was legitimate and in compliance with applicable law” and the penalty assessed by FERC is without basis.
Barclays Chief Executive Antony Jenkins, who took the helm last year, is trying to rebuild the bank’s battered reputation and repair testy relationships with regulators.
One of his first moves was to tackle the investment banking business criticised for a free-wheeling culture and accused of paying staff too much.
Jenkins said in April he wanted his bank “to become a model of constructive engagement with regulators”, but has admitted turning the bank around could take at least five years.
Barclays shares were up 0.5 per cent at 309.8 pence by 1542 GMT, in line with a firmer European banking index.
The US case is expected to be a major test of FERC’s enforcement powers, expanded by Congress in 2005 legislation that had its genesis in the Enron electricity manipulation scandals in the western United States earlier in the decade.
FERC has also told US bank JP Morgan it intends to take action against it and some staff over alleged power trading manipulation, which the bank has said it will vigorously defend.
Deutsche Bank paid US$1.7 million in January to settle allegations it manipulated electricity markets in California in 2010.
Ron Wyden, the chairman of the Senate’s Energy and Natural Resources Committee, said FERC sent a strong message to traders and banks.
“Consumers have the right to heat and power their homes without fear that traders are stacking the deck against them to rack up unjust profits,” Wyden said in a statement.
The FERC order said the bank must pay US$435 million within 30 days, while the managing director of the power trading team, Scott Connelly, must pay US$15 million.
FERC said three other traders involved in the scheme must pay fines of US$1 million each.
The FERC initial investigation uncovered emails and instant messages that Barclays has termed “unfortunate.” The four traders boasted how “fun” it was to “crap on” physical power prices on the West Coast.
They no longer work at the bank, for reasons unrelated to the investigation, a source familiar with the matter said. Barclays effectively quit the energy trading business in the Western United States in 2011.
A former FERC enforcement director said that if Barclays refuses to pay the fine, agency staff will likely file an action in a US District Court.
It would be the first time an energy market manipulation case from FERC would be considered in such a venue, said Susan Court, FERC’s director of enforcement from 2005 to 2009.