LONDON: Barclays is planning to issue about £5bn of new shares to help plug a £7bn capital shortfall triggered by new UK regulatory demands, two sources familiar with the matter said.
Barclays said yesterday that it had been in talks with Britain’s financial regulator and would update the market on its capital plans when the bank publishes half-year results today. Two sources saidthe update would include the announcement of a £5bn share sale.
The sources said the sale will be done as a rights issue, where existing investors are given the opportunity to buy new shares so their stakes will not be diluted. One source said the shares would be offered at a “significant double-digit discount” to Barclays’ closing price of 308 pence, as is the convention in the UK. Barclays declined to comment.
Since the shares are sold to existing investors, the discount only matters if investors do not take up all of their allocation and the shares are then sold to outsiders. Such rights issues typically take between six to eight weeks to complete in the UK.
Barclays’ shares fell as much as four percent on reports that the bank would issue new equity. The bank was the biggest faller in Britain’s FTSE 100 share index. Barclays’ stock has more than doubled in value over the past 12 months.
Barclays and other European banks are under pressure to comply with new regulation to constrain the industry’s risk-taking that could prevent a re-run of the taxpayer bailouts that followed the financial crisis. Regulators’ new focus is on banks’ leverage ratios, which do not rely on banks’ own risk assessments but express a bank’s capital as a proportion of its overall assets.
This has raised the stakes for banks across Europe. Deutsche Bank is expected to unveil plans to shrink its balance sheet when it reports second-quarter results today. Barclays needs about £7bn to lift its leverage ratio to a 3 percent minimum demanded by the UK regulator from an estimated 2.5 percent, taking into account future losses on bad loans and mis-selling compensation.
Two people familiar with Barclays’ plans said the bank’s efforts were also likely to include convertible bonds, bonds that convert into equity if a bank’s capital falls below a trigger point. Barclays declined to comment further on its plans. The Prudential Regulation Authority (PRA) also declined comment.
One of Barclays biggest 20 investors told Reuters he had not been contacted about any capital raising plans. “I’m not hugely happy about it but it’s been enforced upon them. Does the bank definitely need this extra capital? Probably not. But if the PRA says it, then the bank’s hands are tied,” the investor said.
Reuters
