British multinational universal bank, Barclays has reportedly disclosed losses worth USD 592 million that were caused by mishandling of structured product sales and stated that these developments would delay a previously planned share buyback program.
For the unversed, structured notes are complicated debt instruments that banks often customize to meet specific requirements of fixed-income clients. Because of their complexity, buyers, authorities, and banks' risk management committees have incentives to keep the amount of such debt under strict limits.
Barclays revealed that it had sold nearly two times the affected securities over the past year as it was allowed to sell in the U.S., going over its USD 20.8 billion limits by a whopping USD 15.2 billion. The securities will now have to be repurchased for their original purchase price.
The products in question were two exchange-traded bills linked with market volatility and crude oil, and the bank terminated all new sales and offerings of the notes in March.
Barclays estimates that the loss would amount to USD 590.32 million, which will diminish its core capital ratio to the middle of its 13-14% target. Additionally, this estimate doesn’t include tax expenses.
Barclays reported that it would postpone a planned USD 1.31 billion share repurchase until Q2 this year, stating that it had initiated an independent review of the incident. Authorities were also conducting external inquiries and asking for information on the specifics of the matter.
The company’s shares were down by 3% in early trading. Barclays' wider investment bank had proved to be a great performer over the recent years, helping it record a stellar annual profit for 2021. Although the current share buyback program has only been postponed, this oversight could result in reduced future capital payouts to shareholders, cited sources with knowledge of the matter.
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