Barclays plans share issue to fill capital hole
LONDON, England – BARCLAYS, Britain’s second-largest bank, plans to issue new shares worth £5.8 billion to shore up its capital and satisfy new regulatory requirements meant to prevent a repeat of the 2008 crisis. Its stock price plunged as investors worried dividends would be cut and share value diluted.
The sale of stock to existing shareholders was announced yesterday along with the bank’s first-half earnings, and came after the Prudential Regulation Authority told Barclays and other lenders to increase their capital as a buffer against future crises.
Barclays said its leverage ratio — the amount of capital held against total assets — was 2.2 per cent compared with the new requirement of three per cent. That translated to a shortfall in capital of £12.8 billion.
“It’s not a hole in the balance sheet. It’s the product of a series of calculations and adjustments both to the gross side of our balance sheet and our capital,” chief executive Antony Jenkins told the BBC. “We haven’t been trading recklessly. This is the product of a long set of conversations with the PRA.”
Investors were jolted by the figures, however, and sent shares in Barclays 6.1 per cent lower.
The British regulator has increased pressure on banks to hold more capital at a time when they are also being pushed to lend more to businesses and families to help kick-start the economy, which has been slow to recover from the global economic crisis.
Besides the share issue, Barclays’ plan also calls for a reduction in leverage — the amount of debt used to finance investments — and the retention of earnings. That could mean lower dividend payments to shareholders. The bank will also issue £2 billion of bonds that could be easily converted into shares — if the bank gets into trouble.
Jenkins described the move to build more capital as an effort to act prudently. He’s been anxious to wrestle to the ground what he described as legacy issues that were created before he was named CEO last August.
Before Jenkins took over and promised the bank would be as ethical as profitable, Barclays was shaken by a string of scandals costing it billions of pounds.
The institution, founded by Quakers and once known for thrift, has been fined by regulators in the US and Britain for manipulating the London interbank offered rate, or LIBOR, the benchmark for trillions of dollars in loans — including some home mortgages. It is also fighting a half billion dollars in fines for allegedly manipulating electricity prices in California and other western states.
In its earnings statement, which showed net income of £671 million for the first half of 2013, compared with £148 million a year earlier, Barclays said it set aside £2 billion for the mis-selling of payment protection insurance and controversial interest rate swaps.
But Jenkins insisted that the bank was moving in the right direction — despite past issues.
“The important thing is to deal with them in a way that is bold and decisive,” he said. “I do think we’ve made tremendous progress.”