The shares of the UK bank fell 3.7% by mid-morning in London on Monday after announcing its earnings will be impacted due to having issued too many structured notes in the US market.

Barclays has announced today (28 March) it expects a £450 million (US$591 million) loss and will delay a share buyback after mistakenly issuing US$15 billion worth of structured notes and exchange-traded notes (ETNs) above the volume it had registered for sale under its BBPLC US Shelf.

The bank issued about US$36 billion of investment products after registering with US regulators in August 2019 to sell up to US$20.8 billion. The over-issuance error will require the firm to repurchase the affected securities under a so-called rescission offer at their original price.

‘BBPLC has determined that the securities offered and sold under its US shelf registration statement during a period of approximately one year exceeded the registered amount giving rise to a right of rescission among certain purchasers of affected securities requiring BBPLC to repurchase the Affected Securities at their original purchase price,’ according to a statement released by the bank.

In addition to the rescission losses (net of tax) Barclays expects its Common Equity Tier 1 (CET1) ratio and its consolidated subsidiaries to be in the middle of the 13-14% target range by the end of March 2022, which reflects approximately 14 bps reduction from the estimated loss and a further 15 bps reduction due to an increase in risk weighted assets in respect of short-term hedging arrangements designed to manage the risks to Barclays arising out of the rescission offer.

The equivalent impact on Barclays Bank’s consolidated CET1 ratio as of 31 March 2022 is expected to be a reduction of 23 bps in respect of the estimated loss and 23 bps for the hedging impact.

‘The above represents Barclays’ best estimate at this time of losses which may arise from these matters,’ stated the bank, adding that the losses will be reflected in the group’s Q122 results.

‘Barclays is also assessing the impact of these matters on prior period financial statements of Barclays Bank.’

Due to the current proximity to its closed period, the £1bn share buyback programme announced on 23 February 2022 as part of FY21 results is now expected to commence in Q222 following the publication of the group’s Q122 results.

The bank led by Coimbatore Sundararajan Venkatakrishnan (pictured) has commissioned an independent review of the facts and circumstances relating to this matter including the control environment related to such issuances. Separately, according to Barclays, regulatory authorities are conducting inquiries and making requests for information.

‘Barclays remains committed to its structured products business in the United States,’ stated the bank.

ETN suspension

The announcement follows the suspension of any new sales from inventory and any issuances of the iPath Pure Beta Crude Oil (OIL) ETNs and the iPath Series B S&P 500 VIX Short-Term Futures (VXX) ETNs.

The UK bank said the suspension was triggered because it does not have sufficient issuance capacity to support further sales from inventory and any further issuances of the ETNs.

Barclays expects to reopen sales and issuances of the ETNs as soon as it can accommodate additional capacity for future issuances.

According to Goldman Sachs, the VXX has options referencing six times its share count, more than twice the ratio of any ETF or stock except the iShares iBoxx $ High Yield Corporate Bond (HYG) and SPDR S&P Retail ETF (XRT), a junk bond and retailer stocks ETFs respectively.

As reported last week, the UK bank conceded the top spot in the issuer ranking as the largest issuer in US to Goldman Sachs in 2021 despite a 27% increase year-on-year.

Barclays’ structured products sales volume in the US market reached US$12.71 billion while the issuance climbed to 2,549 from 2,070 in 2021. The UK bank lost its place to Goldman Sachs which issued 3,569 structured products sold at US$12.87 billion taking the top on the SRP league table and Morgan Stanley, which collected US$12.85 billion in 2021.