Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Barclays’ money laundering fine in relation to their 2014 financial statements.

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Previous post discussed Barclays drawing a £72M (US$109M) fine for breaking British anti-money laundering laws.  The bold scheme involved not putting clients’ names into the computer system amongst other creative plans. They bankers involved also gave their clients a money back guarantee if their names ever became public.

I did a bit of research to find out how the fine compares to their financial statements. Was wondering how big a hit $109M really is for them.

You can find the 2014 financial statements for Barclays at this link. The financials are here. Income statement is on page 224.

Here are some key numbers to help put the £72M fine in perspective:

  • £12,080M – net interest margin
  • £13,208M – all other income
  • £23,032M – provisions for losses and all operating expenses
  • £2,256M – statutory profit
  • £1,411M – taxes
  • £845M – statutory profit after taxes

So £72 is fairly substantial in relation to that amount. However, look closer and you will see the operating expenses include the following items:

  • £1,110M – provisions for PPI and interest rate hedging redress
  • £1,250M – provision for ongoing investigation and litigation relating to Foreign Exchange
  • £2,360M – subtotal of costs for dealing with various law breaking

That means the bank set aside £2.4B, yes billion, for fines and legal fees in 2014.

Let’s add that back to net income:

  • £   845M – statutory profit
  • £2,360M – provision for long list of legal investigations
  • £3,205M – net income before provisions for legal problems

So the £72M fine is 2.2% of the net income before provisions for law breaking. That is a bit of a dent in net income.

Assuming a 5 day week for 52 weeks, the £3,205M would be £12M profit per week day.

So the fine would be just under 6 work days of net income.

The CNN article quoted earlier indicated the scheme was running in 2011 and 2012. That means the fine should be amortized over two years. Spreading the 6 days of net income over the 2 year scheme would mean the fine is 3 days worth of net income for each of the two years when the bank’s bankers were laundering money.

Equal to 3 HOV tickets in 2 years

What would that fine look like for a person?

Consider one site says the median household income in California in 2014 was $61,933. That would be $1,191 for one week of a 52 week year and $238 for one day.

Several sites, such as this one, say the minimum fine for a high-occupancy-vehicle violation is $481. That’s the cost for a car pool lane ticket. Let’s ignore the various fees and ‘costs’ added on to the fine which could be a few hundred dollars more.

So, a fine equal to three days household income would be about $1,429 at the median income level. (61,933 / 52 / 5 * 3)

That would be around three HOV tickets. (1,429 / 481 = 2.97) Add in the costs and fees would mean that is probably 2 tickets.

So that means Barclays’ fine is roughly comparable to an average household in California getting nailed for 2 or 3 HOV tickets in two years. Enough to ruin your budget for a few months, but not devastating.

Might, or might not, be enough to get you to change your driving habits. For some drivers, or bankers, that is only enough of a fine to make you look more carefully for CHP vehicles.

Next post looks at the cumulative settlements and legal fees.

 

Written by Jim Ulvog

December 14, 2015, 7:16 am at 7:16 am

Posted in Other stuff

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