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By Steve Slater
LONDON, June 27 (Reuters) - Barclays Plc said it isbringing in outside help to speed up an investigation intoalleged misconduct in its "dark pool" operations, which haverekindled concerns that the cost of past problems at itsinvestment bank will rise.
More than 2 billion pounds ($3.4 billion) was wiped offBarclays' market value on Thursday after New York's attorneygeneral filed a lawsuit against the British bank, accusing it oftrying to grab extra profits from its alternative trading systemwhile promising to get the best possible prices for customers.
The shares stabilised on Friday and were up 0.6 percent at216.2 pence by 1200 GMT after tumbling 6.5 percent to a 19-monthlow on Thursday.
Dark pools allow institutional investors to trade largeblocks of shares anonymously. Prices are posted only after dealsare done, and the pools were created so that investors do notsuffer a disadvantage by signalling their big orders.
But ever-larger volumes of trades have been shunted intothem and critics say the opacity of the markets may be resultingin more investors getting ripped off.
Barclays' dark pool business, called LX, originally belongedto Lehman Brothers, the investment bank that collapsed in 2008.Barclays subsequently bought Lehman's U.S. business.
The business under scrutiny generates relatively modestrevenues for the bank.
The 31-page summons issued by the attorney general saidinternal Barclays documents valued the growth opportunity frompushing more orders into its dark pool at between $37 millionand $50 million per year.
Total revenues for the dark pools business may be $100million to $200 million, industry sources and analystsestimated, out of $4.6 billion in equities revenues last year.
Analysts said the hit to its shares reflects broader concernthat customers may leave Barclays, that Chief Executive AntonyJenkins will struggle to turn around the bank's culture asquickly as he needs to, and the threat of higher-than-expectedlitigation costs on a range of issues.
"The complaint reminds investors of the litigation burdenthat faces the sector and Barclays," said Michael Helsby,analyst at Bank of America Merrill Lynch.
Barclays has been hit by series of scandals in recent years,including its role in the rigging of the Libor interest ratewhich cost chief executive Bob Diamond his job in 2012, leadingto huge fines and legal bills.
Helsby raised his estimate of possible litigation costs forBarclays to 7.5 billion pounds over the next three years, from2.4 billion, and cut his price target on the stock to 285p from350p.
"The dark pool allegations are a reminder that 7 years intothe financial crisis there are still 'unknown, unknowns' thatare capable of knocking the shares aggressively, raisingquestions about Barclays' integrity and franchise," said Helsby.
Barclays, which has 20 days to respond to the lawsuit, saidon Friday it was still assessing the complaint.
Barclays could suffer a litigation cost of $163 million fromthe dark pool activities, analysts at Credit Suisse estimated.
Jenkins told staff in a memo issued on Thursday he hadstarted an internal investigation into the allegations. "Toassist us in that we have brought in substantial externalresource to ensure that the investigation can proceed at paceand is properly objective," the memo said.
The bank declined to comment who that would involve. Ittypically uses law firms Clifford Chance in Britain and Sullivan& Cromwell in the United States.
Jenkins is trying to restore Barclays' reputation but theemergence of past sins are hampering his efforts. Last month itwas fined 26 million pounds for past failures in internalcontrols that allowed a trader to manipulate the setting of goldprices.
Rival banks have pulled business out of Barclays' dark pool,the Financial Times reported. Deutsche Bank, CreditSuisse and Royal Bank of Canada, and assetmanager Alliance Bernstein had all withdrawn from the dark pool,it said.
Barclays has the second most active alternative tradingsystem in the United States after Credit Suisse, according toregulator Finra. They are followed in size by UBS,Bank of America Merrill Lynch, Morgan Stanley,Deutsche Bank and Goldman Sachs.
Shares in other banks also fell after the Barclays lawsuit,on concern that others will also be targeted. U.S. authoritieshave been investigating the business for up to a year to assessif dealers are ripping off investors in increasingly automatedstock markets.
($1 = 0.5880 British Pounds) (Additional reporting by Lionel Laurent; editing by DavidStamp)
