On November 19, 2018, a U.S. appeals court in Manhattan ruled that Barclays Plc was not liable to investors who bought its U.S.-listed stock before the 2008 financial crisis and later accused the bank of masking its exposure to risky debt and a capital gap.
In a 3-0 decision, the 2nd U.S. Circuit Court of Appeals upheld the dismissal of claims against Barclays and underwriters led by Citigroup Inc over the British lender’s April 2008 sale of $2.5 billion of American depositary shares. By the following March, Barclays’ share price had fallen 80 percent.
The lawsuit was one of the last major crisis-era cases alleging that big banks inflated their stock prices by failing to disclose troubled credits on their balance sheets. Plaintiffs said Barclays concealed 21.6 billion pounds, then about US$42 billion, in mortgage-backed securities and other risky assets insured by monoline insurers.
The bank was also accused of ignoring a March 2008 “directive” from the U.K. Financial Services Authority that required it to raise more equity capital. The appeals court said Barclays may have had a duty to disclose its monoline exposure, but it had “resoundingly” shown that the omission had little or no effect on its share price.
The judges also rejected the argument that the regulator’s warnings amounted to a directive. They said that “expressions of concerns about a bank’s financial status and vigorous requests - even if expressed urgently - to be kept apprised of the bank’s contingency plans” did not meet that standard.
The ruling affirmed a September 2017 decision by U.S. District Judge Paul Crotty in Manhattan. Crotty had said the collapse of Lehman Brothers Holdings Inc, the bailout of insurer American International Group Inc, and capital raisings by other British banks could also have contributed to Barclays’ share-price decline.
Lawyer Joseph Daley, who represented the plaintiffs, did not immediately respond to requests for comment. Barclays spokesman Andrew Smith declined to comment.
The case is In re: Barclays Bank Plc Securities Litigation, 2nd U.S. Circuit Court of Appeals, No. 17-3293.
