Events in Turkey have claimed their first known victim: Bloomberg reports that Tolga Kirbay, a director level credit trader at Barclays in London, lost $19m trading Turkish bonds in recent days. Following a 50% decline in the value of some Turkish corporate bonds in 2018, the loss is indicative of the potential for other big losses elsewhere. It also raises questions about Barclays' approach to risk as the British bank pursues increased trading revenues.
When Tim Throsby took over as head of Barclays investment bank, he famously instructed traders there to reawaken their “commercial instincts” and increase their risk appetites.
As the chart below shows, Throsby's words seemed to have an effect in the first six months of this year. Management Value at Risk (VaR) (defined as including all trading positions in corporate and investment bank and Head Office) at Barclays rose by 33% overall in the first half of 2018 compared to the same period a year earlier. The biggest percentage increase in risk taking was in rates, followed by equities. The latter may help explain Barclays' strong equities performance in the second quarter.
Barclays didn't respond to a request to comment for this article, but the bank's $19m Turkish credit loss is a reminder that risk-taking is a double-edged sword. It comes at a sensitive time, given that Barclays has an activist investor that aspires to slim down or spin off the sales and trading business waiting in the shadows.
However, it's also worth bearing in mind that far larger trading losses are not uncommon at banks with big trading arms. At J.P. Morgan, where both Throsby and Barclays' CEO Jes Staley worked before joining Barclays, traders lost $100m on one day in February 2018 and over $50m on four other days in the first half.
None of this is likely to be much consolation to Tolga Kirbay as he squirms under the spotlight suddenly being shone upon his mistake. It doesn't help that he's relatively new to Barclays, having joined from BNP Paribas in the last couple of years.
Kirbay's exposure may, however, hold a lesson for other traders who want to take risk with comparative impunity and with immunity to the downsides when things go wrong: don't do it at Barclays. These kinds of mistakes are more likely to be downplayed elsewhere.
Value at Risk at Barclays:
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