Barclays is reportedly taking a step back from asset-based lending (ABL), a move prompted by recent troubles in what was considered a safe corner of finance.
At its core, this story is about trust—specifically, trust in the collateral that backs up a loan. For a long time, ABL was seen as secure because if the borrower defaulted, the lender could simply seize the assets (like property or inventory). However, two recent company collapses, Market Financial Solutions (MFS) in the UK and Tricolor in the US, have shattered this assumption.
Let's trace the events that led to this decision. The alarm bells started ringing in late 2025. First, US subprime auto lender Tricolor and auto parts supplier First Brands both filed for bankruptcy amid allegations of serious fraud. The most critical issue was 'double-pledging'—using the same collateral to secure multiple loans. This meant the assets lenders thought they had a claim on were not actually there, or were promised to many others. Barclays took a hit of around £110 million from Tricolor and began reviewing its loan portfolio more cautiously.
Then, the situation escalated in early 2026. UK mortgage lender MFS, to whom Barclays had an exposure of roughly £500-£600 million, collapsed and went into administration. This was the second major 'secured' loan failure in a short period, confirming that the Tricolor incident wasn't a one-off. The problem of weak collateral controls and potential fraud was systemic.
This sequence of events created a perfect storm. Firstly, the direct financial losses forced Barclays to re-evaluate risk. Secondly, lawsuits from investors in Tricolor's securities added legal and reputational pressure. Thirdly, regulators, like the Bank of England's Prudential Regulation Authority (PRA), began scrutinizing banks' exposure and due diligence processes. The cost and risk associated with ABL had suddenly become much higher.
In response, Barclays' reported pullback is a logical risk-management decision. It signals a broader shift in the industry: banks will now demand much stricter audits and verification of collateral before extending credit, making this type of financing more expensive and less accessible for some borrowers.
- Glossary
- Asset-Based Lending (ABL): A type of business loan secured by assets such as accounts receivable, inventory, or equipment. It's a way for companies to get funding based on the value of what they own.
- Double-Pledging: An illegal practice where the same asset is used as collateral for more than one loan simultaneously, without the lenders' knowledge. This deceives lenders into believing their loan is more secure than it is.
- CET1 Ratio (Common Equity Tier 1): A key measure of a bank's financial strength. It compares a bank's core capital (from common stock and retained earnings) to its risk-weighted assets, indicating its ability to absorb losses.