Barclays private credit review: Bank of England watchdog said to be examining derivatives logging
The Prudential Regulation Authority is reportedly reviewing Barclays' handling of loans tied to the private credit sector, after an insider raised concerns earlier this year about how the bank logged derivatives used to finance them. The review reportedly began after the derivatives were allegedly recorded in the wrong portfolio, making them look less risky than they were.
Barclays private credit review: Bank of England watchdog said to be examining derivatives logging
What the reported review covers
The Prudential Regulation Authority, the Bank of England's regulatory arm, is examining how Barclays handles loans linked to the private credit sector, according to the Financial Times. The review started earlier this year after a Barclays insider raised concerns, the newspaper reported.
At the centre of the concerns is the way the bank recorded derivatives it uses to finance the loans it issues to private credit firms. Sources cited by the Financial Times said those derivatives were allegedly logged in the wrong portfolio, indicating they were less risky than they actually were.
If that is what happened, the report noted two possible consequences:
- Barclays may not have been holding enough capital to cover potential losses.
- The mis-logging could have boosted the bank's profitability.
The same sources said Barclays has built up billions of dollars' worth of exposure to private credit loans using derivatives.
What Barclays and the Bank of England say
Asked about the review, Barclays issued a statement: "Barclays takes seriously its regulatory obligations in markets where it operates. Barclays does not comment on its interactions with regulators."
The Bank of England declined to comment on the reported review. Last year, Barclays chief executive CS Venkatakrishnan insisted the bank had the right controls in place to manage its private credit exposure.
Braddick recusal
The review is awkward for Katherine Braddick, who became head of the bank regulator this spring after spending six years as Barclays' head of strategic policy and senior adviser to its chief executive. The Bank of England said Braddick is recused from all matters relating to Barclays until the end of 2026.
Market reaction and private credit backdrop
Barclays shares fell by 3.5% on Monday, making it the second-biggest faller on the FTSE 100 index amid a sell-off across the banking sector.
The review comes against a strained backdrop for private credit, a shadow banking corner of finance where firms use investor money rather than customer loans or deposits to fund company lending, and face lighter regulation. Banks, Barclays among them, have started lending directly to private credit firms or their funds, or to companies that borrow from such firms, and partnering with asset managers - entangling the two. Regulators have warned that any fallout could destabilise traditional banks.
- Earlier this year, some private credit funds saw a multibillion-pound surge in withdrawals, forcing caps on client withdrawals.
- Two private credit-backed US automotive companies, Tricolor and First Brands, failed last year, both hit by fraud allegations.
- UK mortgage lender Market Financial Solutions (MFS) collapsed in February amid allegations of fraud.
Barclays, alongside JP Morgan, suffered losses on Tricolor's collapse and took a £228m hit after the MFS failure.
The bank is due to report its latest financial results on Thursday.
