Since Barclays exceeded a U.S. limit on sales of structured products, some of which have surged in popularity since Russia’s invasion of Ukraine, it faces an estimated 450 million pound ($592 million) loss and regulatory scrutiny.
On March 28, the bank said that it will have to delay a planned 1 billion pound share buyback as a result of the loss. That is a loss that the bank will have to incur as a result of buying back the securities in question at their initial purchase price.
After the bank confirmed that it had oversold billions of pounds worth of the securities over a period of nearly a year, overshooting a $20.8 billion limit agreed with United States regulators by $15.2 billion, shares in Barclays closed down 4%.
The major regulatory error is an early embarrassment for the newly-appointed chief executive of Barclays, C.S. Venkatakrishnan, whose previous roles included heading up the bank’s global markets and risk operations.
In a note, analysts at Shore Capital said that Barclays appeared to be “tripping over its shoelaces”.
The previous demonstration of a stellar performer for Barclays over recent years by the wider investment bank had helped it post a record annual profit for 2021.
Analysts at Shore Capital said that although the current share buyback has only been delayed, the error could minimize future capital distributions by the bank to shareholders.
In a further blow after the London market close, one of Barclays’ top investors instructed the U.S. investment bank to sell a considerable chunk of stock in the bank, a Goldman Sachs note seen by Reuters showed.
The target price range was 6.1-8.1% lower than the closing price for the sale of 575 million Barclays’ shares, a factor that might put further pressure on the stock price as Q1 2022 ends.
A source familiar with the matter said, two exchange-traded notes (ETNs) linked to crude oil and market volatility were among the products involved. Barclays halted the issuance and sale of both this month.
Since investors placed bets on volatility as the Ukraine crisis roiled global markets, the so-called VXX product had surged in popularity before sales were suspended, with the number of shares changing hands daily doubling to 71 million in a month.
At the time, Barclays said capacity issues were to blame and the crisis in Ukraine did not contribute to the actions.
The bank’s best estimate was that the loss on the affected securities would amount to 450 million pounds, cutting its core capital ratio to the middle of its 13-14% target range. The tax was not included in the loss estimate.
As a result, its share buyback would be delayed until the second quarter of the year, Barclays confirmed. While regulators were conducting inquiries and requesting information from the bank, it said that it had commissioned an independent review.
Barclays also said that it would file for new registration with the U.S. Securities and Exchange Commission (SEC) as soon as practicable. It said the securities were registered for sale in August 2019.
($1 = 0.7604 pounds)