Barclays $593 Million Potential Losses from Overselling Securities in United States, Halts New Retail Structured Products after $15 Billion Clerical Error
1st April 2022 | Hong Kong
Barclays has warned of a potential $593 million loss from overselling securities in United States and stopping new retail structured products in United States after discovery of overselling $15 billion of structured & exchange traded notes due to clerical error. Barclays limit for the structured product was $20.8 billion, but had exceeded the limit by $15.2 billion. Barclays is expected to offer to buy back the securities at the original price, with the British bank expecting to take a loss of $593 million. The US Securities & Exchange Commission (SEC) is investigating the case, which had occurred in 2019 but discovered only recently.
“ Barclays $593 Million Potential Losses from Overselling Securities in United States, Halts New Retail Structured Products after $15 Billion Clerical Error “
Impact of over-issuance under BBPLC US Shelf
As part of its structured products business, Barclays Bank PLC (“BBPLC”), a subsidiary of Barclays PLC (“BPLC”), is a frequent issuer of structured notes and exchange traded notes in the United States and elsewhere. These securities are often issued to meet actual and anticipated client demand for such securities.
BBPLC has determined that the securities offered and sold under its US shelf registration statement during a period of approximately one year exceeded the registered amount (such excess, the “Affected Securities”)1 giving rise to a right of rescission among certain purchasers of Affected Securities requiring BBPLC to repurchase the Affected Securities at their original purchase price. As a result, BBPLC has elected to conduct a rescission offer to eligible purchasers of the Affected Securities. Details of the rescission offer will be published by BBPLC in due course.
Based on current market prices of the Affected Securities and the estimated pool of potentially eligible purchasers electing to participate in the rescission offer, Barclays expects the rescission losses (net of tax) to be c.£450m and the CET1 ratio of BPLC and its consolidated subsidiaries to be in the middle of the 13-14% target range as at 31 March 2022. This reflects a c.14 bps reduction from the estimated loss and a further c.15 bps reduction due to an increase in risk weighted assets in respect of short- term hedging arrangements designed to manage the risks to Barclays arising out of the rescission offer. The equivalent impact on BBPLC’s solo-consolidated CET1 ratio as at 31 March 2022 is expected to be a reduction of c.23 bps in respect of the estimated loss and c.23 bps in respect the hedging impact. The hedging impacts will reverse on conclusion of the rescission offer.
The above represents Barclays’ best estimate at this time of losses which may arise from these matters and will be reflected in BPLC’s Q122 Results Announcement. Barclays is also assessing the impact of these matters on prior period financial statements of BBPLC.
Due to the current proximity to its closed period, the £1bn share buyback programme announced on 23 February 2022 as part of FY21 Results is now expected to commence in Q222 following the publication of BPLC’s Q122 Results Announcement.
Barclays has commissioned an independent review of the facts and circumstances relating to this matter including, among other things, the control environment related to such issuances. Separately, regulatory authorities are conducting inquiries and making requests for information.
BBPLC intends to file a new automatic shelf registration statement with the SEC as soon as practicable. Barclays remains committed to its structured products business in the United States.
Barclays is a British universal bank. We are diversified by business, by different types of customer and client, and geography. Our businesses include consumer banking and payments operations around the world, as well as a top-tier, full service, global corporate and investment bank, all of which are supported by our service company which provides technology, operations and functional services across the Group. For further information about Barclays, please visit our website home.barclays.
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