Key Takeaways
- • Roger Versluys, a former Barclays managing director who left in 2023, argued on LinkedIn that a reported Bank of England review reflects a control failure driven by cost-cutting, and predicted that junior staff would be blamed.
- • The Financial Times reported the Bank of England is examining whether Barclays traders misrepresented illiquid private credit loans to understate risk, via total return swaps moved into the trading book, where less capital is required.
- • Barclays said its treatment of the total return swaps is consistent with accounting and regulatory capital rules, and that its total private credit exposure is £15bn, the vast majority held in the banking book.
- • Barclays shares closed down 3.5% on the Monday following the FT report; no wrongdoing has been established.
- • Barclays is cutting a further £2bn in costs and automating and offshoring roles to India, with its third-quarter results due the following day.
Summary
Barclays' investment bank is facing renewed regulatory scrutiny. According to the Financial Times, the Bank of England is examining whether Barclays traders misrepresented illiquid private credit loans to understate their risk. The FT reported that the Prudential Regulation Authority received a complaint from a Barclays insider about the placement of total return swaps (TRSs) referencing illiquid private credit loans into the trading book, where they would require less capitalisation than in the banking book. Barclays traders had hedged these positions with back-to-back total return swaps and argued that this made the positions tradable. The FT noted that hedged is not the same as liquid, though no wrongdoing has been established.
Barclays responded that its treatment of the swaps is consistent with accounting and regulatory capital requirements. The bank said its total private credit exposure is £15bn, the vast majority held in the banking book. Mark-to-market of loan TRSs on private credit assets contributes about £0.3bn of the aggregate exposure, equivalent to about £1.5bn of notional. Barclays stated that the conditions for trading book classification under capital rules were met and were supported by internal governance and external advisers. Barclays shares closed down 3.5% on Monday after the report.
Roger Versluys, who spent around 20 years as a managing director at Barclays before leaving in 2023 and now heads structuring for EMEA at crypto firm Ripple Prime, wrote on LinkedIn that the issue reflected a control failure caused by prioritising cost-cutting. He predicted that junior staff would be sacrificed to demonstrate accountability. Gerald Brawn, a former markets COO who left in 2011, agreed that nothing would change. Versluys also drew a parallel with 2022, when Barclays accidentally sold US structured notes worth nearly $18bn more than its registration allowed. That incident cost the bank £894m before tax, including a $200m SEC penalty and the cost of repurchasing the notes, according to the article. The SEC found Barclays lacked tracking to ensure it knew how many securities it was selling versus registered, and that staff calculations of carried-over capacity were wrong. It is not clear whether juniors were blamed for that incident or whether such blame is common practice. Barclays did not comment on Versluys' observations.
The bank reports third-quarter results the following day and is in the process of cutting a further £2bn from costs, as well as automating jobs and offshoring others to India.
Barclays responded that its treatment of the swaps is consistent with accounting and regulatory capital requirements. The bank said its total private credit exposure is £15bn, the vast majority held in the banking book. Mark-to-market of loan TRSs on private credit assets contributes about £0.3bn of the aggregate exposure, equivalent to about £1.5bn of notional. Barclays stated that the conditions for trading book classification under capital rules were met and were supported by internal governance and external advisers. Barclays shares closed down 3.5% on Monday after the report.
Roger Versluys, who spent around 20 years as a managing director at Barclays before leaving in 2023 and now heads structuring for EMEA at crypto firm Ripple Prime, wrote on LinkedIn that the issue reflected a control failure caused by prioritising cost-cutting. He predicted that junior staff would be sacrificed to demonstrate accountability. Gerald Brawn, a former markets COO who left in 2011, agreed that nothing would change. Versluys also drew a parallel with 2022, when Barclays accidentally sold US structured notes worth nearly $18bn more than its registration allowed. That incident cost the bank £894m before tax, including a $200m SEC penalty and the cost of repurchasing the notes, according to the article. The SEC found Barclays lacked tracking to ensure it knew how many securities it was selling versus registered, and that staff calculations of carried-over capacity were wrong. It is not clear whether juniors were blamed for that incident or whether such blame is common practice. Barclays did not comment on Versluys' observations.
The bank reports third-quarter results the following day and is in the process of cutting a further £2bn from costs, as well as automating jobs and offshoring others to India.
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