Key Takeaways
- • The Bank of England's Prudential Regulation Authority (PRA) is reportedly reviewing how Barclays handled total return swaps used to finance its loans to private credit firms, according to the Financial Times.
- • The concern centres on derivatives allegedly logged in the wrong portfolio, which could have made them appear less risky than they were and may have left Barclays holding less capital against potential losses.
- • Barclays puts its total private credit exposure at about £15bn, with the relevant derivatives accounting for £300m of that total, and says its treatment is consistent with accounting and regulatory capital rules.
- • The review involves new PRA head Katharine Braddick, a former six-year Barclays executive, who has been recused from all Barclays matters until the end of 2026.
- • Barclays shares fell 3.5% on Monday, the second-largest decline on the FTSE 100, ahead of its results due Thursday.
Summary
The Bank of England is reportedly examining Barclays' handling of loans linked to the private credit sector, a segment that has come under strain after a series of high-profile failures. According to the Financial Times, the PRA began its review earlier this year after concerns were raised by a Barclays insider. The issue relates to how Barclays logged total return swaps, derivatives that track the performance of an underlying asset and are used to finance loans the bank extends to private credit firms. The derivatives are reportedly recorded in the wrong portfolio, making them appear less risky than they are. If so, the bank could be holding less capital than needed to cover potential losses, and its profitability could have been overstated. Sources cited by the FT say Barclays has built up billions of dollars of exposure to private credit loans through such derivatives.
Barclays rejected the characterisation. It said its treatment of total return swaps is consistent with accounting and regulatory capital requirements, and that it followed capital rules when deciding where to log certain assets. "Those conditions were met and supported by appropriate governance internally and by external advisers," the bank said. It put its total private credit exposure at about £15bn, of which the relevant derivatives account for £300m. The Bank of England declined to comment.
The review may prove sensitive for the PRA's new chief, Katharine Braddick, who spent six years as Barclays' head of strategic policy and senior adviser to chief executive CS Venkatakrishnan before becoming head of the regulator this spring. The Bank of England said Braddick is recused from all Barclays matters until the end of 2026. Venkatakrishnan had insisted last year that Barclays had the right controls to manage its private credit exposure.
The report comes as Barclays shares fell 3.5% on Monday, the second-biggest faller on the FTSE 100, amid a wider banking sector sell-off. The bank is due to publish its latest financial results on Thursday. Private credit, which funds loans through investor capital rather than deposits and faces lighter regulation, has been under scrutiny after multibillion-pound withdrawal surges earlier this year, some funds capping redemptions, and failures including Tricolor, First Brands and Market Financial Solutions. Barclays took losses linked to Tricolor, alongside JP Morgan, and a £228m hit after the MFS collapse.
Barclays rejected the characterisation. It said its treatment of total return swaps is consistent with accounting and regulatory capital requirements, and that it followed capital rules when deciding where to log certain assets. "Those conditions were met and supported by appropriate governance internally and by external advisers," the bank said. It put its total private credit exposure at about £15bn, of which the relevant derivatives account for £300m. The Bank of England declined to comment.
The review may prove sensitive for the PRA's new chief, Katharine Braddick, who spent six years as Barclays' head of strategic policy and senior adviser to chief executive CS Venkatakrishnan before becoming head of the regulator this spring. The Bank of England said Braddick is recused from all Barclays matters until the end of 2026. Venkatakrishnan had insisted last year that Barclays had the right controls to manage its private credit exposure.
The report comes as Barclays shares fell 3.5% on Monday, the second-biggest faller on the FTSE 100, amid a wider banking sector sell-off. The bank is due to publish its latest financial results on Thursday. Private credit, which funds loans through investor capital rather than deposits and faces lighter regulation, has been under scrutiny after multibillion-pound withdrawal surges earlier this year, some funds capping redemptions, and failures including Tricolor, First Brands and Market Financial Solutions. Barclays took losses linked to Tricolor, alongside JP Morgan, and a £228m hit after the MFS collapse.
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