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Barclays hit by fresh U.S. investigations

Barclays bank headquarters in Canary Wharf, east London August 30, 2012. REUTERS/Olivia Harris
Barclays bank headquarters in Canary Wharf, east London August 30, 2012. REUTERS/Olivia Harris

By Steve Slater and Matt Scuffham

LONDON (Reuters) - Barclays, already rocked by an interest rate rigging scandal, unveiled new U.S. regulatory investigations into the bank's financial probity on Wednesday and said its profit was hit by charges for mis-selling insurance.

Its shares fell almost 5 percent, hurt by a weaker performance in investment banking than most of its Wall Street rivals and fears that legal problems would handicap its new chief executive's efforts to overhaul the company.

Following investigations in the UK over its dealings with Qatari investors, Barclays said the Department of Justice and Securities and Exchange Commission were probing whether its relationships with third parties who help it win or retain business are compliant with U.S. laws.

The bank is under investigation by Britain's financial regulator and fraud prosecutor into payments to Qatari investors after it raised billions of pounds from the Gulf state five years ago to save it from taking a taxpayer bailout.

Barclays revealed the Financial Services Authority (FSA) investigation in July and confirmed the Serious Fraud Office had launched a probe the following month.

Barclays also said on Wednesday the U.S. Federal Energy Regulatory Commission could be close to fining it over an investigation into the manipulation of power prices in the western United States from late 2006 until 2008.

FERC could notify the bank of proposed penalties as early as Wednesday, and Barclays said it would "vigorously" defend this matter. The investigation was first announced in April, alleging the bank took substantial electricity market positions to move daily index settlements.

In March, the agency fined Constellation Energy a record $245 million over power market manipulation activities as part of a fresh crackdown on power market rigging.

New Barclays CEO Antony Jenkins, who took over at the end of July when his predecessor Bob Diamond quit after the bank admitted rigging Libor interest rates, is in the midst of a review to change culture and lift profitability, due to be unveiled in February.

Investors have made it clear they want a return on equity above the cost of equity, higher dividends and for pay to be cut, Jenkins said. That is expected to mean the investment bank arm will be significantly cut back.

"While we have much to do to restore trust among stakeholders, our universal banking franchise remains strong and well positioned," he said.

The bank has fired staff, clawed back pay and taken other disciplinary action after a "very rigorous" internal investigation into the Libor manipulation, Jenkins said. He declined to provide more specific details on how many staff it had taken action against.

Barclays was fined $450 million by U.S. and UK regulators for the rate rigging. More than a dozen other banks are expected to be fined.

CHARGES HIT PROFIT

The bank said its adjusted pretax profit in the three months to the end of September was 1.73 billion pounds, in line with analysts' forecasts and up from 1.34 billion a year ago.

But a 700 million pound charge for mis-selling payment protection insurance pulled pretax profit down 23 percent to 1.03 billion pounds, and a 1.1 billion pound loss on the value of its own debt dragged it to a loss of 47 million pounds for the quarter.

Investment bank income was 2.6 billion pounds in the quarter, up 17 percent on the same period the previous year, but down 13 percent on a strong performance in the second quarter.

The bank said performance during October had been affected by the "challenging economic environment and subdued market volumes".

That included a 20 percent fall in income in its fixed income, currencies and commodities (FICC) business from the previous quarter, a worse performance than rivals such as J.P. Morgan, Goldman Sachs and Deutsche Bank.

Shares in Barclays were down 3.9 percent at 229.5 pence at 1114 GMT, having been as low as 227p, while the European bank index was up 0.3 percent.

"We were disappointed to find that total income in the Investment Bank fell short of market expectations, following a strong showing elsewhere in the industry," said Shore Capital analyst Gary Greenwood.

Barclays raised the prospect it would soon sell bonds that convert into equity if capital nears dangerous territory. Britain's regulator is assessing the merits of so-called "contingent capital", which Barclays said were an "attractive" option for investors and would help its capital structure".

"We have made considerable progress with the FSA regarding the capital value to be attributed to these instruments. Now that we have greater clarity we will be engaging with investors in the next few weeks to solicit their views," Finance Director Chris Lucas said on a conference call.

($1 = 0.6218 British pounds)

(Additional reporting by Sarah White and Karolin Schaps; Editing by Will Waterman)

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