Barclays ordered to review exposure to private equity
The UK’s leading banking regulator has reportedly instructed Barclays to review its leveraged finance unit amid growing concern over how lenders are measuring their exposure to private equity.
The Bank of England’s Prudential Regulation Authority (PRA) has ordered Barclays to commission a section 166 review of the division, Bloomberg News reported.
Under this measure, a firm is required to bring in an outside expert to review its practices and provide regulators with an independent report, which they use to determine whether further action is necessary.
Spokespeople for Barclays and the Bank of England declined to comment.
The PRA is expected to launch more reviews into leveraged finance, which is commonly used for private equity buyouts.
Bank of England regulator Rebecca Jackson wrote to lenders in April, warning that many banks are unable to identify their risk exposure to private equity giants and ordering them to stress test their relationships with the sector.
Jackson said banks should “comprehensively identify, measure, combine, and record risks” tied to buyout funds and their portfolio companies.
“Very few firms carry out routine, bespoke and comprehensive stress testing for aggregate sponsor related exposures,” she added.
The Bank of England is due to publish a biannual report on financial stability later this month that it has said will provide new insights on the dangers of private equity to the UK financial system.
Its Financial Policy Committee warned in March of “larger than expected credit losses being incurred in the future” as more private equity firms used “amend and extend” agreements, allowing businesses to push back payment dates instead of trying to refinance debt at a higher rate.
The news comes as Barclays looks to strengthen its ties with buyout firms as part of wider efforts to improve the performance of its global investment bank, which has weighed on the group’s results in recent times amid reduced dealmaking and capital markets activity.