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Barclays CEO Staley departs after Epstein probe

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November 1, 2021

By Lawrence White

LONDON (Reuters) – Barclays Chief Executive Jes Staley is leaving the bank after a dispute with British financial regulators over how he described his ties with convicted sex offender Jeffrey Epstein.

Staley will be replaced as chief executive by the bank’s head of global markets C.S. Venkatakrishnan, who pledged on Monday to continue his predecessor’s strategy for Britain’s third-biggest bank by market value.

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Staley’s shock departure comes after Barclays was informed on Friday of the unpublished findings of a report by Britain’s Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) into Staley’s characterisation of his relationship with Epstein, who killed himself in jail in August 2019 while awaiting trial on charges related to sex trafficking.

“In view of those conclusions, and Mr Staley’s intention to contest them, the Board and Mr Staley have agreed that he will step down from his role as Group Chief Executive and as a director of Barclays,” the bank said.

“It should be noted that the investigation makes no findings that Mr Staley saw, or was aware of, any of Mr Epstein’s alleged crimes, which was the central question underpinning Barclays’ support for Mr Staley following the arrest of Mr Epstein in the summer of 2019,” it said in a statement.

The investigation has yet to be published, though regulators have said previously that it was focused on how truthful Staley was about his ties to Epstein.

If Staley is found to have misled regulators he could face a fine, a ban from Britain’s financial industry or both.

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Barclays shares fell 2% following the announcement, before paring losses to trade down 1% at 1315 GMT, underperforming European rivals.

‘I THOUGHT I KNEW HIM WELL’

Staley dealt with Epstein during his long career at JPMorgan, where Epstein was a major private banking client until 2013.

A college dropout who styled himself as a brilliant financier, Epstein socialised in elite circles, including with former and future U.S. presidents. In 2008, he was registered as a sex offender but continued to maintain ties with powerful players in business and finance.

The New York Times reported in 2019 that Epstein had referred “dozens” of wealthy clients to Staley. It reported that Staley visited Epstein in prison when he was serving a sentence between 2008-09 for soliciting prostitution from a minor, while Bloomberg reported he visited Epstein’s private island in 2015.

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Staley told reporters last February that his relationship with Epstein had “tapered off significantly” after he left JPMorgan in 2013, and that he had not seen the disgraced financier since taking over as CEO of Barclays in 2015.

“I thought I knew him well, and I didn’t. I’m sure with hindsight of what we all know now, I deeply regret having had any relationship with Jeffrey Epstein,” he said at the time.

Epstein’s links with prominent men have come back to haunt some of them.

Leon Black, the billionaire investor, stepped down https://www.reuters.com/article/us-apollo-global-clayton-idUSKBN2BE1E0 from Apollo Global Management, the private equity firm he co-founded, earlier this year after an outside review found he had paid Epstein $158 million for tax and estate planning.

Britain’s Prince Andrew https://www.reuters.com/world/uk/prince-andrew-seeks-dismissal-accuser-giuffres-lawsuit-2021-10-29 has quit royal duties over his associations with Epstein while Microsoft co-founder Bill Gates has said it was a “huge mistake” to spend time with the financier.

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Britain’s FCA and PRA regulators said in a statement they could not comment further on the Epstein investigation, which was launched https://www.reuters.com/article/us-barclays-results-idUSKBN2070NF after JPMorgan provided them with emails between Epstein and Staley from Staley’s time as head of JPMorgan’s private bank, the Financial Times reported last year.

RIGHT STRATEGY

Staley told staff in an internal memo seen by Reuters that he did not want his personal response to the investigations to be a distraction.

“Although I will not be with you for the next chapter of Barclays’ story, know that I will be cheering your success from the sidelines,” he said.

Staley has 28 days to formally notify the FCA that he is contesting its findings, after which an independent committee inside the watchdog will uphold or reject its conclusions, a source familiar with the process told Reuters.

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If upheld, the investigation passes to an independent Upper Tribunal which again can back or reject the findings, the source said, in a process that could take months.

The bank’s new CEO Venkatakrishnan, who followed Staley to Barclays from JPMorgan and is known as Venkat, told staff on Monday the strategy put in place by his predecessor was “the right one”, according to a separate memo also seen by Reuters.

Venkat added that he would announce changes to the organisation of the investment bank in the coming days, likely to mean filling his previous role and any other resulting vacancies, sources at the bank said.

Barclays’ share price has fallen 9% since Staley’s joined the bank nearly six years ago, a tenure not without controversy.

His greatest success, insiders and analysts say, was to fight off a campaign by activist investor Edward Bramson in 2018 to have Staley removed on the grounds that Barclays’ investment bank was underperforming and should be cut back.

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Bramson sold his stake earlier this year, and the bank’s recent results have shown the investment bank performing strongly.

Also in 2018, Britain’s financial regulators and Barclays fined Staley a combined 1.1 million pounds ($1.5 million) after he tried to identify a whistleblower who sent letters criticising a Barclays employee.

(Reporting by Rachel Armstrong and Lawrence White; Additional reporting by Carolyn Cohn and Huw Jones; Editing by Louise Heavens, Kirsten Donovan and David Clarke)

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Investors brace for potential hit to earnings because of Omicron

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December 6, 2021

By Caroline Valetkevitch

NEW YORK (Reuters) – As details of a new COVID-19 variant emerge, investors are bracing for a potential hit to U.S. corporate earnings, particularly among retailers, restaurants and travel companies.

News of the Omicron variant comes in the middle of the holiday shopping period, and many businesses are already struggling with higher inflation and supply chain snags because of the pandemic.

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That is putting the focus again on these companies affected by the reopening of the economy, said Kristina Hooper, chief global market strategist at Invesco in New York.

“Are we still going to see traffic into restaurants and retailers, or at least retailers that derive most of their revenue from in-store traffic as opposed to online?” she said. “The other area of vulnerability of course is supply chain disruptions.”

She and other strategists said it’s too early to tell the extent to which the variant could affect earnings.

The Omicron variant that captured global attention in South Africa less than two weeks ago has spread to about one-third of U.S. states, but the Delta version accounts for the majority of COVID-19 infections as cases rise nationwide, U.S. health officials said on Sunday.

Goldman Sachs on Saturday cited risks and uncertainty around the emergence of the Omicron variant as it cut its outlook for U.S. economic growth to 3.8% for 2022. While the variant could slow economic reopening, the firm expects “only a modest drag” on service spending, it said in a note.

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U.S. companies have just wrapped up a much stronger-than-expected third-quarter earnings season, and the rate of fourth-quarter earnings year-over-year growth has been expected to be well below the previous quarter’s.

Analysts see fourth-quarter S&P 500 earnings up 21.6% from the year-ago quarter, while third-quarter earnings growth was at about 43%, according to IBES data from Refinitiv.

That fourth-quarter forecast has not changed since Nov. 26, just after the new variant became headline news.

Omicron may be affecting travel plans. Airline shares have already come under pressure, with the NYSE Arca airline index down 8.3% since the close of the session before Nov. 26.

For companies, “the significance of the impact will depend on how long the Omicron measures last,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “There will be some short-term impact… It’ll surely cause some short-term disruption to travel.”

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Colin Scarola, a vice president of equity research at CFRA, wrote in a Dec. 2 note on the airline sector that while details of the variant are still emerging, trends in U.S. air travel over recent months with the Delta variant may give some insight into what could happen to travel under the Omicron variant.

“This recent history tells us that most people have already accepted the material risk of infection with a Covid-19 variant when fully vaccinated. But knowing that risk of severe illness remains very low, they’ve been comfortable flying on airplanes,” he wrote.

Compounding concerns about the 2022 earnings outlook are higher costs for companies, with Federal Reserve Chair Jerome Powell last week signaling that inflation risks are rising and numerous companies citing rising costs during the third-quarter earnings season.

Even before the Omicron news, Tuz said investors were reading “more and more about inflation and wages and other inputs,” and that was expected to continue into 2022.

“I don’t know if the ability to pass along these higher costs is going to exist as much,” he said.

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(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Nick Zieminski)

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Bank investment chiefs signal China and emerging market caution

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December 6, 2021

LONDON (Reuters) -Market volatility and uncertainty over China’s indebted property sector is making bank investment chiefs cautious about its assets, amid more general nervousness about broader emerging markets.

“I would take a wait-and-see approach on emerging markets,” Credit Suisse global chief investment officer Michael Strobaek told the Reuters annual Investment Outlook Summit.

“I would take a day-by-day, week-by-week approach to China, to see what’s unfolding on the default side and the policy side,” he said, referring to problems in the country’s giant corporate debt sector.

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“Only if I see real deep opportunities, I’d go back in.”

Willem Sels, Global CIO, Private Banking & Wealth Management, HSBC, said clients needed to take a longer term view on emerging markets after many were hurt by recent volatility.

“We have a neutral view on China, we try to diversify,” he said.

“We try to get the confidence of investing in China. We try to align ourselves with what is clear in terms of government policy, and that’s the net zero transmission.”

Investors can still “find some winners” in China by digging down into areas like green tech and 5G-related businesses where the government was showing significant support, said Mark Haefele, CIO at UBS Global Wealth Management.

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(Reporting by Tommy Wilkes, Sujata Rao and Dhara Ranasinghe; Editing by Alexander Smith)

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IMF says euro zone should keep supporting economy, high inflation is temporary

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December 6, 2021

BRUSSELS (Reuters) – Euro zone governments should continue to spend to support the COVID-19 economic recovery, though in an increasingly focused way, and consolidate public finances only when it is firmly under way, the International Monetary Fund said on Monday.

In a regular report on the euro zone economy presented to the group’s finance ministers, the IMF noted, however, that while consolidation itself could wait, a credible way of how it would be done in the future should be announced already now.

“Policies should remain accommodative but become increasingly targeted, with a focus on mitigating potential rises in inequality and poverty,” the IMF said.

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“Fiscal policy space should be rebuilt once the expansion is firmly underway, but credible medium-term consolidation plans should be announced now,” it said.

The Fund also noted that the rise in inflation, which hit a record high of 4.9% on a year-on-year basis in November, was temporary and, therefore, not a big threat because it did not translate into a spike in wages, called a second-round effect.

“Recent inflation readings have surprised on the upside, but much of the increase still appears transitory, with large second-round effects unlikely,” the report said, adding that the European Central Bank’s monetary policy should therefore continue to be accommodative.

“Structural reforms and high-impact investment, including in climate-friendly infrastructure and digitalization, remain crucial to enhancing resilience and boosting potential growth,” the IMF said.

(Reporting by Jan Strupczewski; Editing by Paul Simao)

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