Barclays takes £110m hit from US subprime lender collapse as private credit risk grows
Barclay revealed a loss of 110 billion tied to the collapse of Tricolor, the US Lellender Auto Lellender suspected of fraud – an event that is now seen as a major indicator of the private credit market.
The bank confirmed no damage in its third quarter results, which were otherwise mixed, showing a pre-tax profit of $2.1 billion – down year-on-year but broadly in line with analyst forecasts.
Chief executive Cs Venkatakrishnan, known as Venkat, said the fall of Tricolor was “not surprising, it was a fraud,” while admitting that “the fraud is not.”
The lender disclosed a total credit exposure of $20 million, about 6% of its $346 billion loan book, with 70% of that exposure in the US.
Private debt – direct lending by non-bank institutions such as hedge funds and insurance – has exploded since the global financial crisis, as regulations on Tour Banking drive corporate lenders. But bagercupcies have recently been made of the tricolor and the first products that have raised concerns about the dangers hidden in the fast-growing but opaque environment.
Barcloys said that most of its lending was to “experienced managers with a strong track record”, and that it rejected the approach to funding early-stage products because its analysts “did not see sufficient support for the financial projections.”
Venkat told investors
His comments came after Andrew Baileey, the governor of the Bank of England, warned that “alarm bells” were ringing on private debt, calling it “a very open question” or whether the recent US default signaled deeper risks.
Despite the impairment, Barclays shares rose 4.9% to 382¼p after the bank announced a buyback of £500 million shares with a return-on-equity target in 2025.
Venkat, within three years of the transformation, said Barclays would move to regular quarterly buybacks and introduce new performance targets by 2028. Analysts at Bank of America “despite its sub-prime bank category.
Barclays also revealed that it has developed finance offers for 3,325 car sales, from £90 million, in response to the £11 million consumer compensation scheme proposed by the Financial Conduct Authority (FCA).
The bank said that the larger arrangement shows “the increased probability of a higher number of cases falling within the scale”, but criticized the FCA’s approach, demanding that it properly deal with real losses … and does not accurately reach the wider results “.
Peers including the Lloyds Banking group and close brothers also raised concerns, warning that the regulator’s framework could go beyond the scale of potential harm.
The FCA’s restructuring scheme stems from the industry’s failure to disclose commission payments to car dealers arranging car deals – a controversy affecting up to 14 million deals between 2007 and 2023.
While Barclays described the cost of the restructuring as “Not a significant financial crisis”, the Twin pressures of independent credit exposure and regulatory scrutiny are likely to remain a major concern in the coming months.
As private markets continue to blur the lines between traditional and alternative finance, analysts say the collapse of Tricolor marks the first decline in banks’ involvement in the credit sector.
