Yahoo Finance Barclays (BCS) Asked to Review Exposure to Leveraged Finance
As part of an industry-wide investigation into lenders’ exposure to the private equity industry, Britain’s Prudential Regulation Authority (“PRA”) has asked Barclays PLC BCS to review its exposure to leveraged finance. The news was first reported by Bloomberg, citing a source familiar with the matter who asked not to be identified.
In the recent past, the Bank of England has been concerned about how lenders across the industry are measuring their exposure to the giants of private equity.
In April, the BoE said that very few banks have a clear understanding of their exposures to private equity, which places them at risk of a “large loss.”
Per the people with knowledge of the matter, the PRA has asked Barclays to commission a section 166 review of the business. Such a review forces a firm to bring in an outside expert to examine their practices and produce an independent report for the authorities, which can then prompt further action if necessary.
Notably, leveraged finance has been the financing method of choice for private equity buyouts for a long time now. However, the PRA has found that various banks have not been able to measure their exposure to private equity giants and their portfolio companies.
In April, the PRA asked lenders’ chief risk officers to “comprehensively identify, measure, combine, and record risks” tied to buyout funds and the companies they back.
Currently, it is not clear what, if any, the outcome of the BCS review will be.
In March, the BoE’s Financial Policy Committee signaled that it saw various private-equity-sponsored companies turn to “amend and extend” agreements, wherein they push back the payment date instead of refinancing debt at a higher rate.
The committee warned that such deals can increase the risk of “larger than expected credit losses being incurred in the future.”
In addition to the BoE, the European Central Bank has been conducting reviews to understand how banks lend to the private equity industry amid increasing corporate default threats.
This April, Barclays made a push into the private credit market. BCS, along with AGL Credit Management, a premier investment manager specializing in corporate credit strategies, announced a cooperation agreement and the launch of a private credit investment platform, AGL Private Credit.
The platform combines AGL’s established credit capability with proprietary access to Barclays’ leading leveraged finance and investment banking origination capabilities.
However, the uncertainty about the performance of the capital markets makes us apprehensive, as it might weigh on Barclays’ top-line growth in the near term.
Over the past six months, BCS shares have gained 39.2% compared with the industry’s growth of 5.4%.
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Currently, Barclays carries a Zacks Rank #3 (Hold).
A couple of better-ranked foreign banks are ING Groep N.V. ING and Banco Macro S.A. BMA, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ING’s current-year earnings has been revised 4.7% upward in the past 60 days. ING shares have gained 9.4% over the past six months.
The Zacks Consensus Estimate for BMA’s current-year earnings has been revised 29.6% upward in the past 60 days. Macro Bank’s shares have surged 128.1% over the past six months.
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