Barclays could face losses of up to £600million following the collapse of a UK mortgage lender.
The firm entered administration this week amid fraud allegations, sending shockwaves through the financial sector.
Barclays shares fell in early trading on Friday after reports linked the FTSE 100 lender to the failure of Market Financial Solutions.
The Times reported that Barclays has around £600million of exposure to the firm, a figure analysts at Citi said warranted caution.
However, they stressed that arranging a loan is not the same as holding the risk on the bank’s own balance sheet, adding it was unclear whether any provisions had already been made.
Barclays did not immediately respond to requests for comment. The administration was approved by Chief Insolvency and Companies Court Judge Nicholas Briggs following an application from lenders Amber Bridging and Zircon Bridging, who cited “serious irregularities” in the company’s finances.
“The allegations of fraud are very serious,” judge Briggs is reported as saying, adding that claims of “double pledging” required urgent investigation.
The fraud allegations include claims that the same property assets were used as security for multiple loans. Amber Bridging and Zircon Bridging have reportedly said this has left a “significant shortfall” in the mortgage collateral backing their lending.
Barclays shares fell in early trading on Friday after reports linked the FTSE 100 lender to the failure of Market Financial Solutions
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Insolvency specialists from AlixPartners have been appointed to manage the administration process.
The fallout extends beyond Barclays, with several major financial institutions exposed. US investment bank Jefferies is reported to have around £100million tied to Market Financial Solutions, while Wells Fargo, Banco Santander, Castlelake and Atlas SP Partners — the structured credit arm of Apollo Global Management — are also among those affected by the firm’s collapse.
Wall Street firms collectively arranged more than £2billion in loans to the bridging loan and buy-to-let mortgage provider, according to Bloomberg.
Wall Street firms collectively arranged more than £2billion in loans to the bridging loan and buy-to-let mortgage provider
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Share prices across the exposed lenders fell on Thursday.
Jefferies dropped 3.4 per cent in New York trading, whilst Barclays’ American depositary receipts slipped 1.4 per cent and Wells Fargo declined 0.5 per cent.
The failure of Market Financial Solutions has intensified existing concerns about the private credit industry, which grew to nearly $2trillion globally by 2024, roughly five times its size in 2009, according to Federal Reserve data.
The failure of Market Financial Solutions has intensified existing concerns about the private credit industry
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JPMorgan Chase chief executive Jamie Dimon warned in October about vulnerabilities in credit markets following the collapses of US auto lender Tricolor Holdings and car parts supplier First Brands Group.
“When you see one cockroach, there are probably more, and so everyone should be forewarned of this one,” he told investors at the time.
Earlier this week, Mr Dimon cautioned that certain lenders are engaging in “dumb things” and suggested he is observing parallels to the period preceding the 2008 financial crisis.