Barclays asking shareholders to support rights issue as Bank of
England shows the bank's finances are in a worse state than previously
thought
Barclays
asking shareholders to support rights issue as Bank of England shows
the bank's finances are in a worse state than previously thought
Barclays is asking investors to support a £6bn shortfall. Photograph: Dominic Lipinski/PA
Barclays is asking its shareholders to come up with almost £6bn as its new management team races to comply with a demand by the Bank of England that it plug a £12.8bn hole in its balance sheet.
The bigger than expected cash call – the largest since 2009 – sparked a 5.5% sell-off in shares, and is the centrepiece of a four-pronged strategy by the chief executive, Antony Jenkins, to meet the stringent new tests. It will allow the bank to avoid a dramatic contraction in lending to businesses and households.
Jenkins also admitted the bank was increasing its provisions for mis-selling financial products by an unexpectedly large £2bn, and conceded that plans he had put in place only five months ago to revitalise the bank in the wake of the Libor–rigging scandal would need revisiting.
Promoted only 11 months ago following the departure of Bob Diamond and other top executives after the scandal, Jenkins insisted he had not been forced into the cash call by the Bank of England and refused to apologise to Barclays shareholders for the rights issue, which launches in September.
"It's about doing the best for our shareholders," said Jenkins, who indicated that more cuts could come in the investment banking arm built up under his predecessor and that job cuts could be expected across the wider industry.
Refusing to say if he would waive his bonus for 2013, he insisted that his plan to transform Barclays into the "go-to" bank was making progress but that the cash call would force him to delay achieving a crucial measure of shareholder performance by one year to 2016. Bonuses are likely to be clawed back. Halfway through the year the cost of pay and bonuses in the investment bank already stands at £2.5bn
Jenkins, who at the time of his presentation in February had said that 75 business lines had been assessed on the grounds of ethics, said these would now be reviewed again in the light of the Bank of England focus on a new measure of financial health known as the leverage ratio.
He said the cash call was part of a "bold and balanced plan" to bolster Barclays' leverage ratio from just 2.2% – lower than had been expected – to 3% by the middle of June next year. This is later than originally expected but before the end of the 2015 target that Jenkins had built his "transform" project around.
He received support from David Cumming, head of equities at Standard Life, who attacked the regulators for creating a regime that is "both capricious and hostile to banks" and lacking consistency on its policies towards capital.
Cumming said: "From a taxpayers and investors viewpoint, this must change. If not, funding available for business both large and small will be reduced, while funds realised from future government share sales will be materially below the levels achievable if we had a more objective and coherent regulatory policy."
The government is thought to be considering signalling a sell-off of part of its 39% stake in Lloyds Banking Group after the bailed-out bank reports its results on Thursday.
In an effort to address Barclays' culture, Jenkins is sending Barclays' 140,000 employees on courses to train them in his new values, which are also emblazoned on huge acrylic blocks in the cavernous foyer of the bank's Canary Wharf headquarters. He said his successor should inherit a bank free of the legacy issues he is trying to tackle.
If it was not raising the capital, Barclays would have had to reduce its balance sheet by £427bn. The Bank of England's regulatory arm, the Prudential Regulation Authority, said it had approved the latest capital plan because it did not involve "cutting back on lending to the real economy".
The £5.95bn cash call will be priced at a 40% discount to Monday's share price and investors will be offered one share at 185p for every four shares they already own. The bank will raise £5.8bn after fees have been paid to the investment banks guaranteeing the cash call, who have a get-out clause if the circumstances change.
Jenkins said that he hoped the rights issue would reduce the lingering uncertainty about the bank's capital position for shareholders as he enhanced the bank's dividend – currently 1p a quarter.
Justin Cooper, chief executive of Capita Registrars said there could be have been a bigger fall in the share price without the pledge on dividends from 2014. "To announce an increase in the dividend for next year at the same time is a contradiction, raising money from shareholders with one hand and paying it straight back to them with the other".
Barclays also published first-half results including another £1.35bn provision for payment protection insurance – taking the total to £4bn – and a further £650m for interest rate swap mis-selling, taking the total to £1.5bn. Including these costs, and a cost of buying back its own debt, the statutory profits were £1.7bn, up 93% from the same time last year.
£2bn Issue of bonds: a relatively new form of bond called contingent convertibles, dubbed co-cos, which convert to shares during times of crisis.
£2.5bn Shrinking the bank: by reducing the size of the bank's balance sheet by 2014 Barclays can reduce the amount of capital it needs to hold by this amount
£2.5bn Retaining earnings: the bank will keep a larger portion of the money that it makes between now and June 2014. The cash might otherwise have been paid out in dividends to shareholders or as bonuses to staff
COPY http://www.theguardian.com/business
The bigger than expected cash call – the largest since 2009 – sparked a 5.5% sell-off in shares, and is the centrepiece of a four-pronged strategy by the chief executive, Antony Jenkins, to meet the stringent new tests. It will allow the bank to avoid a dramatic contraction in lending to businesses and households.
Jenkins also admitted the bank was increasing its provisions for mis-selling financial products by an unexpectedly large £2bn, and conceded that plans he had put in place only five months ago to revitalise the bank in the wake of the Libor–rigging scandal would need revisiting.
Promoted only 11 months ago following the departure of Bob Diamond and other top executives after the scandal, Jenkins insisted he had not been forced into the cash call by the Bank of England and refused to apologise to Barclays shareholders for the rights issue, which launches in September.
"It's about doing the best for our shareholders," said Jenkins, who indicated that more cuts could come in the investment banking arm built up under his predecessor and that job cuts could be expected across the wider industry.
Refusing to say if he would waive his bonus for 2013, he insisted that his plan to transform Barclays into the "go-to" bank was making progress but that the cash call would force him to delay achieving a crucial measure of shareholder performance by one year to 2016. Bonuses are likely to be clawed back. Halfway through the year the cost of pay and bonuses in the investment bank already stands at £2.5bn
Jenkins, who at the time of his presentation in February had said that 75 business lines had been assessed on the grounds of ethics, said these would now be reviewed again in the light of the Bank of England focus on a new measure of financial health known as the leverage ratio.
He said the cash call was part of a "bold and balanced plan" to bolster Barclays' leverage ratio from just 2.2% – lower than had been expected – to 3% by the middle of June next year. This is later than originally expected but before the end of the 2015 target that Jenkins had built his "transform" project around.
He received support from David Cumming, head of equities at Standard Life, who attacked the regulators for creating a regime that is "both capricious and hostile to banks" and lacking consistency on its policies towards capital.
Cumming said: "From a taxpayers and investors viewpoint, this must change. If not, funding available for business both large and small will be reduced, while funds realised from future government share sales will be materially below the levels achievable if we had a more objective and coherent regulatory policy."
The government is thought to be considering signalling a sell-off of part of its 39% stake in Lloyds Banking Group after the bailed-out bank reports its results on Thursday.
In an effort to address Barclays' culture, Jenkins is sending Barclays' 140,000 employees on courses to train them in his new values, which are also emblazoned on huge acrylic blocks in the cavernous foyer of the bank's Canary Wharf headquarters. He said his successor should inherit a bank free of the legacy issues he is trying to tackle.
If it was not raising the capital, Barclays would have had to reduce its balance sheet by £427bn. The Bank of England's regulatory arm, the Prudential Regulation Authority, said it had approved the latest capital plan because it did not involve "cutting back on lending to the real economy".
The £5.95bn cash call will be priced at a 40% discount to Monday's share price and investors will be offered one share at 185p for every four shares they already own. The bank will raise £5.8bn after fees have been paid to the investment banks guaranteeing the cash call, who have a get-out clause if the circumstances change.
Jenkins said that he hoped the rights issue would reduce the lingering uncertainty about the bank's capital position for shareholders as he enhanced the bank's dividend – currently 1p a quarter.
Justin Cooper, chief executive of Capita Registrars said there could be have been a bigger fall in the share price without the pledge on dividends from 2014. "To announce an increase in the dividend for next year at the same time is a contradiction, raising money from shareholders with one hand and paying it straight back to them with the other".
Barclays also published first-half results including another £1.35bn provision for payment protection insurance – taking the total to £4bn – and a further £650m for interest rate swap mis-selling, taking the total to £1.5bn. Including these costs, and a cost of buying back its own debt, the statutory profits were £1.7bn, up 93% from the same time last year.
Plugging the £12.8bn gap
£6bn Rights issue: a cash call on investors which will not be launched until September and will raise £5.8bn after fees paid to other banks, which are guaranteeing the fundraising£2bn Issue of bonds: a relatively new form of bond called contingent convertibles, dubbed co-cos, which convert to shares during times of crisis.
£2.5bn Shrinking the bank: by reducing the size of the bank's balance sheet by 2014 Barclays can reduce the amount of capital it needs to hold by this amount
£2.5bn Retaining earnings: the bank will keep a larger portion of the money that it makes between now and June 2014. The cash might otherwise have been paid out in dividends to shareholders or as bonuses to staff
COPY http://www.theguardian.com/business
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