adminLONDON. – Barclays bank set out its stall yesterday to raise £12,8 billion of new capital, including £5,8 billion with a rights issue at a huge 40,1 percent discount, under pressure from rules to strengthen its finances. The rights issue element is worth the equivalent of US$8,9 billion. The bank, which also reported a quadrupling of net profit in the first half of the year, said in a statement that it would tap investors by issuing new shares at a massive discount.
The planned capital boost is aimed at meeting demands made last month by the Bank of England’s Prudential Regulation Authority (PRA), which supervises the banking sector.
Barclays said that the moves and separate measures to shrink parts of its business should push its ratio of equity to assets – or leverage ratio target – above 3,0 percent, the minimum required by the PRA, by June 2014.
“As a consequence of the PRA’s review we have had to modify our capital plans, in order to meet the 3,0 percent leverage ratio target,” said Barclays chief executive Antony Jenkins.
“After careful consideration of the options, the board and I have determined that Barclays should respond quickly and decisively to meet this new target. We have developed a bold but balanced plan to do so.
“The plan is a combination of: a rights issue; prudent reduction of our leverage exposure; issuance of additional tier one securities; and the retention of earnings and other forms of capital accretion.
“We believe this represents the right combination to meet the PRA’s leverage target. It also enables us to maintain our planned lending growth and broader support of our customers and clients.”
Barclays will sell the new shares at 185 pence each, which marked a steep 40,1 percent discount to Monday’s closing level.
It will also raise a further £2 billion by issuing “contingent capital” bonds that will be automatically converted into shares in times of stress.
The PRA had ruled in June that five British banks including Barclays must together find an extra £13,4 billion to meet international rules on amassing sufficient capital cushions against the threat of future financial crises.
London-listed Barclays, which was rocked last year by the Libor rate-rigging crisis, revealed the capital-raising plans alongside news that net profits had more than quadrupled in the first half of 2013.
Earnings after taxation surged to £671 million in the six months to the end of June, compared with £148 million in the same part of 2012.
However, Barclays added that adjusted pre-tax profits sank 17 percent to £3,59 billion from £4,34 billion a year earlier.
Earnings were hit by the cost of a company-wide restructuring that was launched in the wake of the Libor rate-rigging scandal.
The bank revealed additional provisions for compensation linked to product mis-selling. Barclays said it would take an extra £2 billion hit to cover compensation charges, which included £1,35 billion for payment protection insurance. – AFP.
Bongani Ndlovu
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