The loss stemmed from Barclays having to buy back securities at their original purchase price, linked to the sale of structured products.

Shares in UK-listed Barclays fell further yesterday after the lender faced an estimated £450 million ($592 million) loss and regulatory scrutiny for breaching a US limit on the sale of structured products.

The bank said it would have to delay a planned £1 billion share buyback programme because of the loss, which stemmed from having to repurchase securities at their original purchase price.

On Monday, shares in the lender closed down by about 4 per cent. Yesterday, they were down by about 4.4 per cent at around 09:45 London time, having opened down by as much as 5 per cent.

“The delay of the bumper £1 billion share buy back has also rattled shareholders. The bank now needs a reputation reboot for its investment arm, which had been the shining light during the dark days of the pandemic, when the sharp increase in trading helped offset the provisions for bad loans,” Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, the UK financial advisor and investment firm, said in a note.

“An internal and external inquiry is now underway into the bond blunder, in addition to the ongoing FCA [Financial Conduct Authority] probe into former CEO Jes Staley’s relationship with disgraced financier Jeffrey Epstein. It’ll take some time for these clouds to lift, but the underlying performance of the business is positive, and the bank is well capitalised, with a CET1 ratio higher than the regulatory minimum,” Streeter said. (See coverage of the Staley issue here.) 

“It [Barclays] is also well diversified and the prospect for higher interest rates should help boost its net income margins. But there is a risk that soaring inflation and sluggish growth could start tightening their purse strings again and when customers are nervous, card balances get paid down faster, resulting in reduced interest income. So it’s not going to be plain sailing ahead given the added reputation issues it’s now saddled with,” Streeter said.

The saga is also a reminder of how turbulent markets have been challenging for banks and other financial players, even though rising central bank interest rates to combat inflation should, at least on paper, help them to repair margins that have been squeezed by more than a decade of ultra-low rates. The episode also highlights how investment banking arms of big financial groups can, without controls, hit the parent group with losses, as has been the case with Credit Suisse and Nomura and other banks, to give further examples, over the Archegos affair.

Barclays said it has calculated that the securities offered and sold under its “US shelf registration statement” during a period lasting about a year “exceeded the registered amount,” leading to a “right of rescission among certain purchasers of affected securities," and requiring Barclays to buy them back at the original purchase price. 

The bank said it expects a change of about 23 basis points on its Barclays Bank Plc “solo-consolidated” Common Equity Tier 1 ratio – a standard international measure of a bank’s capital buffer.

In February, Barclays reported a strong set of financial results for 2021.