Ex-Barclays MD bemoans cost-cutting, says juniors unfairly blamed for resultant errors

Barclays’ investment bank is no stranger to regulatory issues. One former managing director suggests cost-cutting may be behind the latest cause for scrutiny, and predicts juniors will take the blame.

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Roger Versluys spent around 20 years as a managing director at Barclays before leaving in 2023. Writing on LinkedIn this week after the Financial Times reported that the Bank of England is examining whether Barclays traders misrepresented illiquid private credit loans to understate their risk, Versluys suggested the issue reflected a control failure caused by cost-cutting.

"Another example of a control failing as a result of prioritising cost cutting over everything else," he opined. "Expect no change in direction but a few suitably junior people to be thrown under the bus as a demonstration of ‘accountability’." Gerald Brawn, a former COO in the markets business until 2011, agreed that "Nothing changes!" 

Versluys declined to comment for this article. The FT claimed that the Prudential Regulation Authority received a complaint from a Barclays insider about the placement of total return swaps referencing illiquid private credit loans into the trading book, where they would require less capitalisation than in the banking book. Barclays traders had hedged this with back-to-back total return swaps and argued that this rendered the positions tradable, said the FT. 

Barclays' shares closed down 3.5% on Monday after the FT's report came out. No wrongdoing has been established, but there have been various observations that hedged is not the same as liquid.

Responding to the FT's article, Barclays said: “Barclays’ treatment of Total Return Swaps is consistent with accounting and regulatory capital requirements. As we have disclosed previously, the total size of our private credit exposure is £15bn, the vast majority held in the banking book. Mark to market of loan TRSs on private credit assets contribute c.£0.3bn of the aggregate exposure, equivalent to c.£1.5bn of notional. Under capital rules, we are required to meet certain conditions to classify treatment as trading book. Those conditions were met and supported by appropriate governance internally and by external advisers.”

Versluys, meanwhile, is now head of structuring for EMEA over at Ripple Prime, the crypto firm. During his long years at Barclays, he was global head of prudential regulatory policy (for 12 years until 2015), before becoming an MD working across the structuring business, and latterly an MD working on principal structuring and investments. 

Versluys' LinkedIn comment also suggested this week's reported eyebrow raise from the Bank of England was redolent of 2022, when Barclays revealed that it had accidentally sold US structured notes worth nearly $18bn more than its registration allowed. "Not that long since the note over-issuance where a control was missing leading to fines and buy-back losses," he observed.

Barclays' board said it deeply regretted the 2022 incident after it occurred. That incident cost the bank £894m before tax, including a $200m SEC penalty, and the cost of buying the notes back at their original price, plus interest. The SEC subsequently discovered that Barclays didn't have tracking in place to ensure it knew how many securities it was selling versus those it was registered to sell. Staff knew this was an issue, but it was not resolved. The SEC also found that when previous registration periods were up, Barclays staff calculated how much capacity was being carried over from the previous period, and that they got those calculations wrong. 

It's not clear whether juniors were indeed thrown under a bus as a result of the 2022 over-issuance. Nor is it clear whether that happens often. Barclays didn't comment on Versluys' observations. 

The bank reports its third quarter results tomorrow. It's in the process of cutting another £2bn from costs. It's also in the process of automating jobs and offshoring others to India. 

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