For exceeding a U.S. limit on sales of structured products, some of which have surged in popularity since Russia's invasion of Ukraine, London-based Barclays is set to face an estimated loss of £450 million ($592 million) and increased regulatory scrutiny.
Barclays said that due to the loss it will sustain, which comes as a result of buying back the securities at their original purchase price, it will have to postpone its planned £1 billion share buyback until the second quarter.
Barclays oversold billions of pounds worth of the structured products in the course of about a year, blowing past the $20.8 billion limit agreed upon with U.S. regulators by $15.2 billion.
Two exchange-traded notes (ETNs) linked to crude oil and market volatility were involved in the oversale, according to a source familiar with the matter. This month, Barclays suspended the sale and issuance of both.
As the Ukraine crisis disrupted global markets, the so-called VXX product surged in popularity, with investors betting on the increased volatility. The number of shares traded daily doubled to 71 million in just a month. At the time, Barclays blamed capacity issues and said the actions were not linked to Ukraine.
Newly-appointed Chief Executive Officer C.S. Venkatakrishnan, whose previous positions include heading up the bank's global markets and risk operations, faces a major uphill battle now after such a significant blunder so early on in his tenure.
In previous years, the wider investment bank had been a key performer for Barclays, helping it post a record profit in 2021.
Not only has the current share buyback been delayed, but the loss could lead to a reduction in future capital distributions to shareholders, according to analysts at Shore Capital.
The estimated £450 million loss would cut Barclays’ core capital ratio to somewhere in the middle of its target range of 13-14%.
Regulators have been conducting inquiries and requesting information from Barclays, while the bank said that it has commissioned an independent review.