BARC Barclays Plc

By Max Colchester and Emily Glazer 

LONDON -- Barclays PLC Chief Executive Jes Staley is under investigation by U.K. and U.S. regulators after he tried to unmask a whistleblower who criticized his hiring of a longtime associate for a top job.

The London bank said Monday it had also launched its own investigation into the matter.

Authorities are probing Mr. Staley's actions in trying to identify the source of an anonymous letter that criticized the hiring of Tim Main, who was named in 2016 as head of the financial institutions group at Barclays, according to people with knowledge of the events. The letter also raised questions about Mr. Staley's dealings with him when they worked together at J.P. Morgan Chase & Co.

The U.K.'s Prudential Regulation Authority and Financial Conduct Authority are probing both Mr. Staley and the bank over its treatment of whistleblowers Barclays said in a statement. The bank added that it had issued a formal reprimand to Mr. Staley and would make a "significant" cut to his bonus. It is also conducting its own review into Barclays's controls.

The New York State Department of Financial Services, which regulates Barclays in the U.S., is also investigating the matter, according to people familiar with the probe.

"I have apologized to the Barclays board, and accepted its conclusion that my personal actions in this matter were errors on my part," Mr. Staley said in a statement.

Mr. Main was brought in from Evercore Partners to run Barclays's financial institutions group. Mr. Main, who is based in New York, had previously worked with Mr. Staley at J.P. Morgan Chase & Co. He declined to comment through a Barclays spokesman.

In June 2016, Barclays's board and a senior executive received anonymous letters raising "concerns of a personal nature" about Mr. Main, as well as Mr. Staley's "knowledge of and role in dealing with those issues at a previous employer," the bank said. Mr. Staley initially asked Barclays's internal security team to try to identify the authors of the letters, believing them to be an "unfair personal attack," the bank said. He was told that it wasn't appropriate to do so, the bank said. But in July he followed up on the request, and the security team asked a U.S. law-enforcement agency to try to help, the bank said. The whistleblower's identity was never revealed, the bank said.

Messrs. Main and Staley rose through the ranks in J.P. Morgan's investment-banking division together. They both spent time in the bank's equity capital-markets division, and Mr. Main went on to be global co-head of the bank's financial-institutions group, reporting to Mr. Staley. He then joined Evercore in 2011. People familiar with the matter said the whistleblower's complaint related to concerns that Mr. Main had a substance-abuse problem while at J.P. Morgan. Mr. Staley thought the complaint was unfair and sought to defend Mr. Main, these people added. Mr. Main declined to comment through a Barclays spokeswoman.

The issue is another stumble for Barclays as it tries to overhaul its image after years of scandals. Mr. Staley has trumpeted the bank's values and brought in executives to upgrade its controls. "This latest revelation represents a very significant embarrassment for the board as it tries to rebuild the group's reputation," said Gary Greenwood, an analyst at Shore Capital.

Mr. Staley's actions came amid an upgrade of U.K. regulations meant to protect whistleblowers. The rules had been approved in October 2015 and came into effect the following March and September. They require big U.K. banks to appoint a "whistleblowing champion" among their senior managers and for a report on whistleblowing to be presented to the board every year. The regulations also say banks must permit employees to raise issues in confidence, and that actions "to the detriment of a whistleblower" could threaten a bank or executive's regulatory fitness. U.K. law also prohibits employers from retaliating against whistleblowers.

Proper handling of internal complaints is a widespread issue in banking. Wells Fargo & Co., for instance, has been contending with its own allegations of whistleblower retaliations, which the bank has said it is investigating but hasn't yet spotted a pattern.

A Barclays employee flagged the attempted unmasking to the bank's board in early 2017, the bank said. The board then commissioned its own probe and shared its findings with the U.K. regulators. Barclays said an internal investigation into Mr. Staley's actions concluded that he honestly, but mistakenly, believed that it was permissible to identify the author of the letter.

The probe is expected to take several months, according to people familiar with the matter. Punishments could range from a verbal warning to Mr. Staley's being barred from undertaking regulated activity, a step that would prevent him from remaining CEO. Barclays's board will await the regulators' findings before docking a chunk of his 2017 bonus. Last year, Mr. Staley was paid GBP4.2 million ($5.2 million).

Since his arrival in late 2015, Mr. Staley has refreshed the bank's management team, bringing in a series of new executives. Many of them were from his alma mater, J.P. Morgan. He has replaced Barclays's chief risk officer, chief operating officer and the head of its investment bank. Some within Barclays have grumbled that Mr. Staley wasn't giving insiders a fair chance and was leaning too heavily on J.P. Morgan, where he spent more than three decades, holding a portfolio of roles including running its investment bank.

Mr. Staley left J.P. Morgan in 2013 after a management reshuffle. He joined BlueMountain Capital, a hedge fund that had profited a year earlier from the "London whale" debacle, which left J.P. Morgan with more than $6 billion in losses.

Barclays investors have warmed to Mr. Staley's plan to reinforce Barclays's investment-banking franchise and refocus the lender on its U.S. and U.K. operations. The bank's share price has risen 43% this year.

Barclays Chairman John McFarlane said in a statement that he is "personally very disappointed" in Mr. Staley, but the board nonetheless said it supports his reappointment at the bank's annual shareholder meeting next month.

Write to Max Colchester at max.colchester@wsj.com and Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

April 10, 2017 20:31 ET (00:31 GMT)

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