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‘G-SIFI’ Barclays warns on regulation

Tuesday 15 February 2011 – by Will Henley

Barclays has warned that looming regulatory action in the UK and at the global level will impact its balance sheet this year and could have a “significant effect” on the financial services industry as a whole.

As the bank announced a bumper year of profits for 2010, chief executive Bob Diamond conceded that Barclays is likely to be branded a global systemically important financial institution – or G-SIFI – by the Financial Stability Board.

“The level of uncertainty in the economic and regulatory environment remains high,” admitted Diamond, noting FSB proposals to tighten the leash on G-SIFIs and an ongoing review of UK banks by the Independent Commission on Banking.

“But we cannot allow that to distract us. We recognise that we must maintain a strict and pro-active focus on our capital levels, leverage, balance sheet growth and utilisation and the disposal of legacy assets.”

In its annual statement to investors, the bank revealed that it made a pre-tax profit of £6.07bn ($9.80bn/€7.26bn) in 2010, a 32 per cent rise on the £4.59bn ($7.41bn/€5.49bn) it made in 2009.

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The bank, which employs nearly 150,000 people worldwide, said it would have to maintain a “conservative but progressive” policy on dividends as it awaited further clarity over final capital, liquidity and prudential requirements required by regulations such as Basel III.

Chris Lucas, group finance director, added that he expected new regulatory requirements for market risk to add around £50bn ($81bn/€60bn) to the bank’s total risk weighted assets.

This was likely to have a “corresponding impact on capital ratios”, Lucas said.

Diamond continued: “While there are significant regulatory questions to be resolved in 2011 – especially the outcome of the Financial Stability Board’s deliberations on so-called G-SIFIs (i.e. systemically important financial institutions at a global level, one of which we expect to be Barclays) and, in the UK, the recommendations of the Independent Commission on Banking – we believe that we will be able to manage those impacts.”

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