Barclays Posts $591M Loss On Snafu Debt Sale

Barclays BCS -5.41% PLC announced it is buying back a bunch of structured notes at a loss of around £450m or $591m after selling too many of them.

Structured Notes are a type of debt instrument that are tied to an underlying reference such as the S&P 500 or oil. The British bank had registered with the US Securities and Exchange Commission to sell up to $ 20.8 billion of these bonds. It exceeded the limit by $15.2 billion, the company said.

Barclays said it was conducting an investigation into the matter. Regulators are also “conducting investigations and making requests for information,” the bank said. As a result, the bank will delay the start of its £1billion share buyback program until the second quarter.

Barclays shares fell 3.6% on Monday, the biggest drop in weeks.

Costly mistakes are rare in the world of banking, which is built on a web of technology, policies and procedures designed to minimize the risk of human error. But mistakes happen. Citigroup Inc. accidentally wired $900 million to creditors of cosmetics company Revlon Inc. in 2020. Last year, the UK arm of Banco Santander SA mistakenly paid out £130m to thousands of random accounts.

Barclays is known for its large fixed income business, so the error is particularly surprising. Analysts and investors struggled to understand the announcement.

“I’ve seen a lot of structured notes, but I’ve never seen anything like this before,” said Joseph Dickerson, equity research analyst at Jefferies.

“It looks like an operational or legal failure,” said Jerome Legras, managing partner at Axiom Alternative Investments, a fund specializing in bank debt. “It’s hard to believe they would do something so stupid. This is honestly the first time I’ve heard of something like this.”

Barclays must buy the notes at the original purchase price. The estimated loss suggests that a significant portion of the debt is currently trading below what investors paid for them. In fact, Barclays is more under water on the notes than it appears: Tax breaks associated with the loss are included in the bank’s calculation.

Barclays iPath Pure Beta Crude Oil ETNs due 2041 and iPath Series B S&P 500 Vix Short-Term Futures ETNs due 2048 are among the affected notes. The bank stopped selling and issuing new banknotes a few weeks ago because it was unable to do so. They are still traded on the New York Stock Exchange.

Barclays has exceeded the limits of a so-called shelf registry, which is set up to allow an issuer to split up the sale of a portion of its bonds without having to seek regulatory approval each time. The limit is usually set in advance in the bond prospectus and can be extended.

“In that case, it looks like they forgot to extend that limit,” Mr Legras said.

Barclays said the loss will hurt its Common Equity Tier 1 ratio, a key metric for financial health, but it is expected to remain within the bank’s target range of 13% to 14% on March 31.

Write to Anna Hirtenstein at [email protected]