Barclays’s Funk: Data Leak and Poor Headline Numbers

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The second-largest bank by assets in the United Kingdom, Barclays (NYSE:BCS), reports earnings on Tuesday, and on investors’ minds is the Sunday revelation from Britain’s The Mail that a massive cache of customer data — including details on income, risk appetite, savings, mortgages, health issues, insurance policies, and passport and national insurance numbers — has has been stolen.

For Barclays CEO Anthony Jenkins, who has pushed to implement a “fundamentally different culture” than that created by his predecessor, Bob Diamond, the news was a setback. Upon taking office in August 2012, amid the fallout that followed the bank’s Libor-rigging scandal, Jenkins committed to rebuilding investor and customer trust in the institution, a task he believes could take as long as 10 years.

“It is about what you do, not what you say,” Jenkins told the BBC’s Today radio program in December. “Until people start to perceive the change, Barclays will not begin rebuilding that trust.” He acknowledged that “it’s desperately disappointing to still have these issues being uncovered,” but with Sunday’s news that massive amounts of customer data was stolen, it will be hard for Jenkins to sell the idea that a fundamental change in corporate accountability has begun.

Cleaning up company standards and improving returns has been no easy task. While full-year 2013 results will not be officially reported until Tuesday, the bank released its headline number early on Monday. The bank’s fourth quarter was especially difficult, as investment banking income dropped and Barclays took further charges linked to the cleanup of its business in the wake of the 2008 financial crisis. Full-year profit also missed expectations.

Barclays announced that full-year earnings dropped by 25 percent to 5.2 billion pounds, or $8.5 billion, from a year ago, while adjusted fourth-quarter profit profit dropped to approximately 200 million pounds, or $327.90 million. Jenkins has already turned down his 2013 bonus on the premise that regulatory penalties and lawsuits have continued to impose too-high costs on the bank to warrant the additional compensation, although other executives will be receiving bonuses, and the amount spent on bonuses is expected to have increased.

“It’s difficult to say because of a lack of detail, but if the miss is because of costs to achieve” Jenkins’s overhaul plan, “then we will take that as a positive,” Oriel Securities banking analyst Vivek Raja told Bloomberg. “Barclays would be accelerating the program and that should quell concerns about capital and the balance sheet.”

Like Raja, who rates Barclays shares at a buy, investors appear to have taken the profit drop in stride. Shares — which advanced a modest 8.24 percent in 2013 — were trading up 0.72 percent, at approximately $18.18, on Monday morning. Even the news of the data breach, the worst in British banking history, appears not to have concerned investors much for now.

On Sunday night, Barclays began an investigation of “possible criminal theft” regarding to the data leak and has promised to cooperate with police, The Mail reports.

While it is not yet clear how the records were stolen, a whistleblower — a former commodity broker — exposed the leak by handing over a memory stick containing the records of 2,000 Barclays customers to The Mail. He claimed that those documents were just a sample of the stolen database, which contained information on as many as 27,000 customers.

The former trader was working at a brokerage where the financial data was used to sell dodgy investment scams to those Barclays clients, Bloomberg Television’s Adam Johnson reported. Later, the trader was asked to sell the information to other brokers. The pages of personal details gave brokers the needed information to establish personal relationships with those clients they called.

For Barclays, the data leak is a breach of its obligation under the Data Protection Act, which requires financial institutions to keep personal information secure. “It’s crucial that people’s personal information is properly looked after,” the U.K. Information Commissioner’s Office told Bloomberg in an emailed statement. “We’ll be working with the Mail on Sunday this week to get further details.”

For customers, it is a reminder of the business ethics that drove the world into financial crisis in 2008 and follows closely behind the 290 million pounds, or $476.09 million, the bank was fined for its role in the Libor-rigging scandal. One victim told The Mail: “I’m really angry. I think we should get some sort of compensation. It’s outrageous. The banking industry is the pits.”

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