Deutsche Bank Downgrades Barclays to Hold; LIBOR Scandal Cited
Analysts at Deutsche Bank (NYSE: DB) downgraded Barclays (NYSE: BCS) on Monday from Buy to Hold. The analysts noted that Barclays' Chairman, Marcus Agius, resigned over the weekend as a result of the fallout from the bank's involvement in manipulating LIBOR. The London-based bank's CEO, Bob Diamond, could be next in line to lose his job as the scandal surrounding Barclays grows. Diamond is set to appear before Parliament's Treasury Select Committee on Wednesday. Over the last 5 trading sessions, BCS shares have fallen more than 11%, but the stock is up roughly 4% on Monday.
The Deutsche Bank analysts said that the 290 million euro settlement with US and UK regulators "is on its own not financially material." What is will cause major uncertainty, however, is civil suits from investors who held LIBOR-linked instruments.
The analysts wrote that "we see challenges for plaintiffs to show that artificially suppressed or raised LIBOR estimates from Barclays on their own shifted LIBOR on any given day and that financial loss followed as a consequence. We also note that up to 20 banks are under investigation for their role in LIBOR setting. But given the size of the LIBOR-linked instrument universe and our present inability to predict how losses - if any - may be borne by the sector, we cannot rule out material future costs."
Independent of the growing scandal at Barclays, Deutsche Bank has a positive view of the stock. They said, however, that the stock's "extremely attractive standalone valuation" is "trumped by uncertainty." They added that downside risks in the name include "financial, reputational and regulatory costs of LIBOR rate-setting."
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