Barclays under regulatory review

The Prudential Regulation Authority is investigating how Barclays handled derivatives used to finance private credit loans, according to the Financial Times.

The derivatives problem

Barclays used financial contracts called total return swaps to finance loans to private credit firms.Concerns were raised that these derivatives were logged in the wrong portfolio, indicating they were less risky than they actually were.

Potential capital and profit impact

If derivatives were misclassified, Barclays may not have held enough capital to cover potential losses. This could have boosted the bank's reported profitability.

Barclays defends its accounting

Barclays said its treatment of total return swaps is consistent with accounting and regulatory capital requirements, with conditions met and supported by internal governance and external advisers.

“Barclays' treatment of total return swaps is consistent with accounting and regulatory capital requirements.”

Scale of exposure revealed

Barclays said its total exposure to the private credit sector was worth about fifteen billion pounds, with the relevant derivatives accounting for three hundred million pounds of that total.

Market reaction and next steps

Barclays shares fell three point five percent on Monday, the second-biggest faller on the FTSE one hundred index. The bank is due to report its latest financial results on Thursday.