Barclays reports £466m hedging loss from over issuance

Barclays has reported income of £6.4 billion (US$7.1 billion) in Q3 22, up 16.4% year-on-year (YoY), according to its latest earnings presentation.

The impact of the over-issuance led to a hedging loss of £466m, which resulted in statutory income of £6 billion, in contrast to the hedging revenue of £758m a quarter ago.

This issue was entirely avoidable, and we are taking action to prevent this kind of failure from recurring - C.S. Venkatakrishnan, CEO, Barclays

The over-issuance also contributed to operating cost of £503m during the three months, leading to £3.6 billion statutory costs.

‘We have resolved the matter with the SEC, and the total financial impact was broadly in line with what we disclosed at the second quarter, said C.S. Venkatakrishnan (pictured), Barclays group chief executive, at the group’s result webcast presentation.

‘This issue was entirely avoidable, and we are taking action to prevent this kind of failure from recurring.’

Venkatakrishnan said that the external counsel-led review is now complete and that the bank will use the findings to improve specific controls across the bank, and ‘to reinforce more broadly a strong controls culture’.

Barclays plc reported 13.8% common equity tier 1(CET1) ratio.

The global markets division reported a fall in income of 10% to £2.8 billion in Q3 22 YoY.

‘Excluding the £466m loss from hedging arrangements relating to the over issuance of securities, global markets up 45% representing the best Q3 1 driven by higher activity,’ stated the bank.

US

The UK bank saw its sales volume of retail structured notes bounce to US$1.35 billion in Q3 22 from a historical low of US$137m a quarter ago.

Generated from 333 products, the sales volume translated to a 51.1% decrease YoY. They were sold by several distributors including UBS Financial Services, J.P. Morgan Chase, Raymond James, Incapital and Barclays Capital, according to SRP data.

There are 288 products with unknown distributors. The 25 structured notes offered by UBS Financial Services alone accounted for US$603.9m, representing 44.7% of the total sales volume.

Most of the 25 products sold by UBS are linked to market cap weitghted indices while the remaining linked to  the MSCI EAFE Index, S&P MidCap 400 Index, iShares Russell 2000 ETF, SPDR S&P 500 ETF Trust, Energy Select Sector SPDR Fund and MSCI Emerging Markets Index.

The best-selling product during the quarter was the Trigger Callable Contingent Yield Notes - Worst of Option (06748C883), which was sold by UBS Financial Services at US$53m in mid-September.

By market share, Barclays Bank slipped to the sixth place in the issuer league table in Q3 22 as a result of the review it started in relation to the overissuance of structured notes.

In Q2 22, Barclays Bank only issued 13 retail structured notes in the US in April after it became aware of the mis-selling incident in March. They were marketed by UBS Financial Services (4), Wells Fargo (2), J.P. Morgan Chase (2), BofA Securities (1) or Goldman Sachs Private Banking (1) except three with unknown distributors.

From January to March, 603 retail structured notes were made available by the UK bank in the US, but 75 of them got withdrawn during subscription.

Europe

In the old continent, Barclays issued 156 non-flow structured products in Q3 22, including 79 products in Switzerland, 24 in the UK, 39 in France and 15 in  Italy, a slight increase compared to the 146 products marketed YoY .

The investment bank has stopped launching non-flow structured products in Russia since November 2021, according to SRP data.

There are 39 products with non-public distributors while the remaining were marketed by UK provider MB Structured Investments or in-house. In the UK, the products were wrapped as pension (23), individual savings account (14), medium term notes (14) or deposits (10).  

Apac

The UK bank was the hedge provider of 13 products in the Japanese structured bonds in Q3 22, which were sold at US$233.2m-equivalent. They were distributed by a group of 10 local securities houses led by 82 Securities and 105 Securities in terms of sales volume.

Forty-two of these products were issued by Barclays Bank, two by Svensk Exportkredit and one by Kommuninvest i Sverige.

The structured products issued by the UK bank were distributed by 13 different banks and securities houses led by 82 Securities (five products/JPY44.6 billion), Shinsei Securities (nine products/JPY20 billion) and Shizugin TM Securities (six products/JPY16.4 billion).

One of the products was linked to the Barclays Multi Asset Switch RC 2.5% JPY O Index with a ten-year tenor – this autocallable note was distributed by Nanto Mahoroba Securities and collected JPY50m. A total of three structured bonds are currently linked to the Barclays proprietary index.

No equity-linked securities (ELS) hedged by Barclays have been launched in South Korea since March, SRP data shows. Back in 2021, the bank was the counterparty of 29 ELS.

Click here to view Barclays plc’s Q3 22 presentation.