Barclays Expects £450 Million Loss on Bond Error, Delays Buyback

(Bloomberg) — Barclays Plc expects to take a 450 million-pound ($591 million) hit and will delay a share buyback until the second quarter after issuing about $15 billion more structured notes and exchange traded notes than it had registered for sale.

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Barclays Bank Plc, the subsidiary that holds the lender’s corporate and investment bank, has determined that “securities offered and sold under its U.S. shelf registration statement during a period of approximately one year exceeded the registered amount,” according to a statement Monday. That will require the unit to repurchase affected instruments — a so-called rescission offer — at their original price.

The statement noted that Barclays Bank Plc registered $20.8 billion of securities in August 2019. It exceeded the registered amount by approximately $15.2 billion.

The bank said its “best estimate at this time” of the rescission losses suggests a charge of about 450 million pounds. The lender’s one billion-pound share buyback, originally expected to start in the first quarter, is now expected to commence in the second quarter.

Hedging should mean that half of the hit is expected to reverse upon conclusion of the offer, according to Bloomberg Intelligence analyst Jonathan Tyce.

Shares in Barclays were down 2.9% as of 8:48 a.m. in London on Monday. A Barclays spokesperson didn’t immediately respond to requests for comment.

A shelf registration is an agreement with regulators to allow finance firms to issue securities without applying for approval each time. It allows for a series of issuances without requiring further prospectuses to be filed.

Barclays said it has commissioned an independent review of the matter. It said regulators are also conducting inquiries and requesting information.

Chief Executive Officer C.S. Venkatakrishnan was the group’s chief risk officer at the time the registration document was filed.

“An unhelpful matter, which has triggered an independent review around the control environment,” said Jefferies analyst Joseph Dickerson. “Regulatory enquiries may weigh on sentiment.”

Barclays Bank Plc will file a new automatic shelf registration statement with the Securities and Exchange Commission as soon as practicable. The bank said it remains committed to its structured products business in the U.S.

What Bloomberg Intelligence Says:

Barclays’ errors in issuing structured notes and exchange-traded notes in excess of registered amounts is more a blow to reputation than financials, with half of a near-$600 million hit expected to reverse (hedging) on conclusion of the rescission offer. The deferral of the 1 billion-pound buyback to 2Q from 1Q is disappointing, though again more a sentiment issue than anything fundamental.

— Jonathan Tyce, BI banking analyst

(Updates with share price and details throughout.)