Barclays to Book $591 Million Loss Due to Debt-Sale Snafu

Barclays PLC said it is buying back a slug of structured notes at a loss of about £450 million, or $591 million, after selling too many of them.

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

Barclays said it is conducting a review of the matter. Regulators, too, are “conducting inquiries and making requests for information,” the bank said. As a result, the bank will delay the start of its £1 billion share-buyback program to the second quarter.

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

Expensive flubs are rare in the world of banking, which is built upon a web of technology, policies and procedures designed to nearly eliminate the risk of human error. But mistakes happen. Citigroup Inc. in 2020 accidentally sent $900 million to creditors of cosmetics company Revlon Inc. Last year, the U.K. arm of Banco Santander SA mistakenly paid out £130 million into thousands of random accounts.

Barclays is known for its large fixed-income business, so the mistake is especially surprising. Analysts and investors struggled to make sense of the announcement.

“I’ve seen a lot of structured note issuance but I’ve never seen this kind of matter before,” said Joseph Dickerson, an equity research analyst at Jefferies.

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

Barclays will have to buy the notes at the original purchase price. The estimated loss indicates that a substantial amount of the notes are currently trading below what investors paid for them. In fact, Barclays is more underwater on the notes than it appears: The bank’s calculation includes tax breaks associated with the loss.

Barclays’s iPath Pure Beta Crude Oil ETNs maturing in 2041 and iPath Series B S&P 500 Vix Short-Term Futures ETNs due in 2048 are among the affected notes. The bank stopped selling and issuing new notes a few weeks ago, saying it didn’t have the capacity to do so. They are still trading on the New York Stock Exchange.

Barclays breached the limits of what is known as a shelf registration, which is put in place so an issuer can parcel out the sale of a chunk of bonds without seeking regulatory approval each time. The limit is typically outlined ahead of time in the bond prospectus and can be extended.

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

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

Barclays to Book $591 Million Loss Due to Debt-Sale Snafu – WSJ https://www.wsj.com/articles/barclays-to-book-591-million-loss-due-to-debt-sale-snafu-11648459997