Barclays to buy back up to $18 billion of wrongly sold notes

Barclays Plc will start to buy back as much as $17.6 billion of securities, a process that should determine its losses from a paperwork blunder that saw it accidentally sell more structured and exchange-traded notes than it had registered.

The bank said the repurchase period will start on Aug. 1 and will expire on Sept. 12, according to a statement Monday. Barclays separately said it plans to resume the issuance and sales of some iPath exchange-traded notes, which had been suspended in April.

In March, the bank said it had issued billions more securities than it had registered with the Securities and Exchange Commission. The error requires the firm to offer to repurchase affected securities at their original price under a so-called rescission offer.

Barclays said at its first-quarter results that it has taken charges of £540 million ($651 million) relating to the matter. The flub also saw the bank delay a billion-pound share buyback, suspend the sales and issuance of dozens of exchange-traded notes and halt market-making activities in its own debt securities.

Chief Executive Officer C.S. Venkatakrishnan said in April that the situation was an “entirely avoidable” mistake.

Further Costs

The lender is due to publish its second-quarter earnings on July 28 and some analysts expect to see further costs from the repurchase process.

“Relative to consensus we are more cautious on revenues and on costs,” Citigroup Inc. analysts said in a note. “This may reflect the treatment of rescission losses.”

Barclays said in May that the provision was sensitive to equity market movements and a 5% reduction in the S&P 500 index would lead to roughly £300 million more in the pre-hedged provision. However, this movement would be expected to be “substantially offset by the hedging arrangements,” the bank said.

A company-compiled consensus shows analysts expect a litigation and conduct charge of £949 million for the corporate and investment bank in the second quarter. That compares to a £17 million expense the unit reported for all of last year, according to the bank’s 2021 results announcement.

The paperwork blunder has been called “basic”, “bizarre” and “embarrassing” by analysts. Major banks typically apply for blanket registrations that allow them to regularly issue notes that give clients a chance to bet on everything from market volatility to the performance of particular shares.

Barclays said in Monday’s statement that the securities in question consist of about $14.8 billion of structured notes and around $2.8 billion of exchange-traded notes. It will also pay interest on the structured notes.

What Bloomberg Intelligence Says

Barclays is likely to reflect peer and 1Q trading trends at 2Q, with reasonable FICC and Equities expectations and a beat possible, though £550 million of banking fees may prove a stretch. Leveraged loan exposure and potential charges also appear to be a growing threat, while CIB cost control must remain tight, as in the prior two quarters with Markets guidance continuing to brighten.