Barclays Plc (BARC), the U.K.’s second- largest bank by assets, will seek shareholder approval in April to sell contingent convertible notes to bolster its balance sheet, according to a person with knowledge of the matter.
Barclays will put the plan to issue the bonds, which become shares if its core Tier 1 equity ratio drops below a set level, to shareholders at its April 25 annual meeting, said the person, who asked not to be identified because the plan is private. The bank may ask to sell as much as 7 billion pounds ($10.6 billion) of the securities, according to the Sunday Telegraph, which reported the plans earlier. A Barclays spokesman in London declined to comment.
The lender, which on Feb. 12 announced cost cuts of 1.7 billion pounds after posting its first annual loss in two decades, in November issued $3 billion of contingent capital notes, securities designed to avert future tax-funded bailouts. Those 7.625 percent subordinated 10-year notes will be written down to zero if the lender’s core Tier 1 equity ratio, a measure of financial strength, drops to 7 percent or lower.
The bonds traded at 100.7 cents on the dollar on Feb. 22, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s a premium of 560 basis points to the benchmark 1.625 percent Treasury due 2022, compared with a premium at issue of 604 basis points.
Bonds designed to absorb losses were designed after the collapse of Lehman Brothers Holdings Inc. in 2008 sparked a global financial crisis that forced governments to prop up lenders to prevent contagion to the wider economy.
Bank of England Governor Mervyn King has signaled that lenders may need to make bigger provisions for future loan losses, the cost of regulatory fines and customer redress. He asked regulators to report back next month on how banks should comply.
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