In a massive move to correct a recent accounting error, Barclays PLC is buying back structured notes that it had sold at a loss. The bank sold too many of the instruments that are linked to an underlying reference, resulting in an estimated $591 million loss. While the company had registered to sell up to $20.8 billion of these notes, it actually sold more than that, reaching a $15.2 billion loss.
The banking snafu has sparked widespread criticism, but the bank has said it is reviewing the matter. In addition, regulators have begun an inquiry into the incident. The firm has also delayed the start of a PS1 billion share-buyback program until the second quarter, which was previously planned. The company’s shares were down more than two percent Monday morning. However, expensive banking flubs are rare, and it is difficult to predict whether or not more will occur in the future. The banking system is built on policies, procedures, and technology to minimize the chance of human error. The mistake, however, shows why it is so crucial to keep an eye on the market and the regulatory environment.
The mistake is particularly shocking because Barclays is known for its fixed-income business. This kind of business can be incredibly complicated, so it’s hard to understand why the bank made the mistake. The firm accidentally violated the shelf registry limit for bond issuances, which is set by regulators. While the boundaries for the shelf registry are usually included in a bond prospectus, they can be extended. The issuers of structured records must buy the note at the original price. The loss estimates indicate that Barclays is now more underwater than its apparent losses, since tax breaks are associated with the resulting losses.
The mistake is not surprising, as Barclays is known for its large fixed-income business. Aside from the massive amount of structured notes that it sells, the bank has also made mistakes in other areas of its business. The Bank’s mistake is due to a breach of its shelf registration limits, which allows issuers to sell a large amount of bonds without the approval of regulators.
The error is one of the biggest mistakes in the history of financial firms, and it’s hard to believe that this is not a major mistake. Despite its massive debt-sale business, Barclays was unable to avoid the problem, and this led to its massive loss. Even though this mistake is embarrassing, it could not be avoided.