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IPE special report May 2018

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French pension fund sues Barclays Capital over subordinated debt deal

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  • French pension fund sues Barclays Capital over subordinated debt deal

FRANCE - French pension fund UMR has filed a lawsuit against Barclays Capital France, claiming the institution committed fraud and mismanagement in 2006 by selling the scheme €200m of subordinated debt that has now lost part of its value.

The case, which will be considered by the Paris court of trade next week, alleges Barclays Capital sold UMR subordinated debt issued by the Austrian bank Kommunalkredit Austria - the former subsidiary of Dexia Crédit - in 2006 without disclosing the full terms of the contract. 

UMR argues that Barclays, which sold UMR subordinated bonds called notes, actually provided certificates with different investment characteristics that did not correspond to those initially presented.

As a result, the French pension fund estimates it lost part of its rights on the subordinated bonds.

In the meantime, the Austrian bank has been privatised due to the losses made during the 2008 financial crisis and split into two new financial institutions, Kommunalkredit Austria and KA Finanz.

Charles Vaquier, chief executive at UMR, told IPE that the pension fund's investment in the subordinated debt has therefore been split between the two banks, with KA Finanz holding €150m and Kommunalkredit Austria holding the remaining €100m.

According to Vaquier, the issues UMR is now facing are partly due to the poor results reported by KA Finanz.

He said: "Even though KA Finanz has not recorded any losses, Barclays Capital now estimates its valuation to have fallen to 30% since its creation in 2009.

"We cannot stick to our positions with KA Finanz, as the bad performance of this institution could have some important repercussions on the pension benefits paid to our contributors."

UMR is now asking Barclays Capital to refund the whole of the €200m investment made in 2006 or at least part of the €150m sum that refers to KA Finanz.

Vaquier said: "As long as the valuation of Kommunalkredit Austria remains stable, we do not see any inconvenience in retaining our position in the investment holding by the bank.

"We met with the management team of the institution a while ago, and we are confident our investment will be well managed.

"However, we insist on the fact that Barclays has to provide a full refund for the €150m holding by KA Finanz."

Barclays Capital commented on the lawsuit, saying: "We consider that UMR case is without merit and we will vigorously defend ourself."

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