Barclays haunted by smoke and mirrors accounting
Barclays has been forced to buy back assets sold in an attempt to beautify its balance sheet, analysts have claimed
ACCOUNTING RULES that allowed Barclays to divest itself of $12.5bn (£7.5bn) of bad assets has come back to haunt the bank, according to analysts.
Barclays spun out investment firm C12 Capital Management and granted it a hefty loan to take the assets off its hands, thereby wiping the undervalued portfolio off its balance sheet and replacing it with the C12 loan.
Basel III rules require the bank to reserve more capital than expected for the loan, meaning Barclays needed to wrest control of the assets back in order to sell them off as fast as possible, City A.M. reports.
This has led to an embarrassing u-turn, with the bank buying back the assets and shelling out £83m as a pay-off to C12. One analyst said the deal “caused immense confusion, left a bad taste and now [the bank is] unwinding it anyway”. Barclays is likely to sell the portfolio at a discount over the next three years, meaning that it does not have to hold capital against it.
The bank unveiled its Q1 results yesterday and met with disgruntled shareholders at its AGM. Pre-tax profit fell 9% year-on-year and a significant 9.7% voted against Barclays’ remuneration package, indicating anger at pay packets that have climbed to pre-crisis level while shareholder dividends languish greatly reduced.