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Barclays expects £450mn hit from ETN trading error

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Barclays has delayed its £1bn share buyback programme as the UK bank revealed it would pay customers £450mn for losses made in its US structured products business.

The lender said on Monday that regulators were investigating a trading error, which a person with knowledge of the matter said related to Barclays’ popular VXX and OIL exchange traded notes that were suspended two weeks ago.

The bank said it had issued $15.2bn more ETNs than it had registered for sale in August 2019. In compensating clients who bought the products, Barclays said it would need to repurchase the notes at their original price, which would cost up to £450mn, net of tax.

The disclosure is an embarrassing early blow for new chief executive CS Venkatakrishnan, who was group chief risk officer at the time of the sale.

Shares in Barclays fell 3.6 per cent in early trading on Monday, bringing their decline for the year to 17 per cent.

Barclays added that the loss would cause a 0.14 percentage point hit to its common equity tier 1 ratio — a measure of its ability to withstand financial distress — which would remain in the 13 to 14 per cent target range.

“The £1bn share buyback programme announced on 23 February 2022 as part of full-year 2021 results is now expected to commence in [the second quarter],” the bank said.

“Barclays has commissioned an independent review of the facts and circumstances relating to this matter including, among other things, the control environment related to such issuances. Separately, regulatory authorities are conducting inquiries and making requests for information,” the bank added.

A person with knowledge of the process said the US Securities and Exchange Commission was one of the regulatory agencies investigating the matter, adding that the bank had become aware of the issue only on March 14 and was trying to discover why it had taken so long to come to light.

Joseph Dickerson, an analyst at Jefferies, said the loss was “an unhelpful matter which has triggered an independent review around the control environment”, adding that “regulatory inquiries may weigh on sentiment”.

Barclays said it had registered $20.8bn of securities in August 2019 but exceeded the registered amount by about $15.2bn.

Two weeks ago, Barclays announced it was suspending share creation in VXX and OIL, which are designed to mimic Vix volatility futures and crude oil prices respectively.

It said at the time: “This suspension is being imposed because Barclays does not currently have sufficient issuance capacity to support further sales from inventory and any further issuances of the ETNs.”

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