For Barclays, Jeffrey Epstein Questions Go Beyond Jes Staley

(Bloomberg Opinion) -- That Jes Staley’s conduct as chief executive officer of Barclays Plc is being probed by British regulators for a second time is remarkable and troubling. More than most businesses, banks depend on the trust of their customers; the conduct of the boss is critical to that.

The latest inquiry, by the Financial Conduct Authority and the Prudential Regulation Authority, is looking at Staley’s account of his relationship with the convicted sex offender Jeffrey Epstein. One mustn’t prejudge these things, but concerns about the bank’s future leadership and strategic direction will fester until the supervisors decide whether the 63-year-old American did anything wrong — even if the board is backing him.

Staley’s push into investment banking has been paying off for Barclays, but it matters more that the British lender can show it has a sound culture at the top. Any doubts will unsettle clients, staff and investors, hurting day-to-day business and long-term confidence in the company.

After reprimanding and fining Staley in 2018 for attempting repeatedly to unmask a whistleblower — a probe that came close to ending his tenure — the regulators are looking now at whether he was fully upfront with the Barclays board about how close he was to Epstein. The regulators had gone to Barclays last summer, when the controversy around Epstein blew up again, to ask about the ties between the two men.

Staley says he’s been open with Barclays on Epstein going back to 2015. The bank’s own review of his disclosures concluded that he’d been “sufficiently transparent”; the board unanimously recommended his reelection later this year.

For investors — who pushed the bank’s shares down as much as 4% on Thursday — understanding the scope and terms of the board’s review would have been helpful. Who was the external counsel and how was the review handled? What information did counsel have access to? It’s far from ideal that shareholders weren’t told about regulators probing Staley’s representations since at least December. The board, including chairman Nigel Higgins, has questions to answer too. 

Just how honest Staley has been on his dealings with Epstein is no small distraction, especially when viewed alongside the whistleblower episode. Epstein died in jail in August facing charges of sex-trafficking of minors. For decades, he cultivated ties to international elites that included billionaires and royalty.

There’s little doubt that Staley and Epstein were in contact over many years. The two were introduced in 2000, when Staley was asked to run JPMorgan Chase & Co.’s private bank, where Epstein was already a client. Less clear is how the relationship evolved and whether the ties extended beyond what Barclays has defined as “professional.”

According to a New York Times report, Staley visited Epstein in Florida when he was serving a prison sentence following a 2008 guilty plea of soliciting prostitutes, including a minor. Staley’s name also appeared as the referee in a 2013 banking application by Epstein, the Times has also reported. (A spokesman told the Times Staley had not been aware). In April 2015, Staley and his wife visited Epstein at his private Caribbean island. 

While contacts between the two “tapered off” after Staley left JPMorgan in 2012, the relationship didn’t end until late 2015, Staley said on Thursday. “I thought I knew him well and I didn’t,” Staley told reporters. “I deeply regret having had a relationship” with Epstein, he added.

It may turn out to be a big regret. Reporting fourth-quarter earnings on Thursday, Barclays signaled 2020 will be challenging amid low interest rates and an uncertain economic outlook, and that it will be difficult to achieve profitability targets. It could do without another Staley controversy. His struggle will be retaining the confidence of those around him.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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