Bank of England said to be reviewing Barclays’ handling of private credit loans
Concerns financial contracts known as derivatives were incorrectly logged, potentially boosting Barclays’ profits The Bank of England is reportedly looking into Barclays’ handling of loans linked to the embattled private credit sector. The Bank’s regulatory arm, the Prudential Regulation Authority, started reviewing the matter earlier this year after concerns were raised by a Barclays insider,…
The Bank of England is reportedly investigating Barclays’ management of loans tied to the private credit sector, according to sources cited by The Financial Times. The regulatory authority, Prudential Regulation Authority, initiated the review earlier this year following a concern raised by an insider at Barclays. The issue revolves around the incorrect logging of derivatives used to finance loans to private credit firms.
The derivatives, which are financial contracts that mirror the performance of an underlying asset, were allegedly logged in the wrong portfolio, suggesting they were less risky than they truly were. This could imply Barclays did not maintain sufficient capital to cover possible losses, potentially inflating its profitability. Barclays reportedly built up billions of dollars in exposure to private credit loans through derivatives, as per sources cited by The Financial Times.
The bank stated, "Barclays takes seriously its regulatory obligations in markets where it operates. Barclays does not comment on its interactions with regulators." Barclays' shares fell by 3.5% on Monday, marking one of the steepest declines on the FTSE 100 index. The bank is scheduled to release its latest financial results on Thursday.
In the past, Barclays' chief executive, CS Venkatakrishnan, assured that the company had adequate controls to manage its exposure to the private credit industry, a sector plagued by criticism for lax lending standards. Private credit firms, a significant component of the shadow banking sector, utilize investor capital to fund loans to companies, rather than customer deposits or loans.
These firms face less regulation due to their structure. Traditional banks, keen to capitalize on the expanding market, have begun lending directly to private credit firms or their funds, and to companies that borrow from private credit firms simultaneously. Many banks are also partnering with asset managers on private credit deals.
However, concerns remain that private credit firms have been overly permissive in their loan decisions, and regulators warn that any fallout could destabilize traditional banks linked to the industry. Recent uncertainties have led to a multibillion-pound wave of withdrawals from some private credit funds, compelling a few to cap client withdrawals.
The private credit sector has been striving to recover after high-profile company failures, including two US automotive companies, Tricolor and First Brands, that filed for bankruptcy last year due to fraud allegations. Additionally, mortgage lender Market Financial Solutions (MFS) collapsed in February amid fraud allegations, causing Barclays to incur a £228 million loss.
Written by urgent.news from Guardian Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
