Barclays Capital sued for £50m over bond loss claims

Barclays Capital, the investment banking arm of the UK banking giant, is being sued over claims it failed to properly manage a portfolio of bonds.

Barclays Capital, the investment banking arm of the UK banking giant, is being sued over claims it failed to properly manage a portfolio of bonds.

The company has received a £50m claim from a German bank which found itself sitting on losses of more than 50 per cent from an investment in a basket of corporate loans and bonds put together by Barclays.

The legal tussle will come as a blow to Barclays, which has built a good reputation in the debt markets, and will raise fears that other bigger investors could join the German regional bank, HSH Nordbank, in suing the company.

In 2000, HSH was one of a number of investors in a complex debt product called a collateralised debt obligation (CDO). CDOs are one of the instruments used by banks to parcel out corporate debts and bonds, spreading the risk of default to other investors, and have helped insulate many banks from high-profile corporate collapses. Barclays issued 16 managed CDOs between 2000 and 2002 accounting for $15bn (£8.4bn) of debt obligations, not just its own but those of other lenders and bondholders.

HSH's $151m investment has since fallen by an estimated 50 per cent, and the bank is demanding to be compensated. It hopes other investors will join it in taking legal action for what it claims was Barclays' inaccurate pricing information at the time of the sale and its subsequent failure to manage the portfolio. Barclays said yesterday it had no comment.

A trial in two parts is scheduled at the High Court in London, with the first in February 2005. Michaela Fischer-Zernin, a spokeswoman for HSH, said: "HSH regrets that it has had to issue the proceedings but it is committed to the full recovery of its losses, which it regards as the responsibility of Barclays Bank."