The bank plans to raise as much as 5 billion pounds ($7.7 billion) in a rights offering and shrink assets, the Financial Times reported today. Barclays said in a statement it has held talks with the Prudential Regulation Authority and will update the market when it reports results tomorrow.
The lender, which holds the least capital as a proportion of its assets of Britain’s four biggest banks, must either raise 7 billion pounds in equity or cut 240 billion pounds of assets to meet a 3 percent leverage ratio set by the Bank of England’s PRA. Barclays had resisted pressure form the regulator to sell stock and favored issuing contingent convertible securities instead. Analysts had estimated Barclays would only seek to raise as much as 4 billion pounds in a right offering.
“I don’t understand what the urgency is for Barclays to do a rights issue, sell CoCo’s and deleverage all at the same time,” said Chirantan Barua, an analyst at Bernstein Research in London who rates Barclays outperform. “Either the regulator has turned really risk-averse on investment banks or there’s something in tomorrow’s earnings that no one knows about yet.”
The shares fell 3.5 percent to 309.05 pence in London trading, for a market value of about 39.8 billion pounds. That’s the biggest daily drop since June 20. The stock has gained about 18 percent this year.
Barclays will say second-quarter pretax profit, excluding swings in the value of its own debt, rose to 2.1 billion pounds from 1.78 billion pounds in the year-earlier period on cost-cuts and increased income from investment banking, according to the median estimate of nine analysts surveyed by Bloomberg.
The lender set aside an additional 1 billion pounds in the fourth quarter to compensate clients wrongly sold interest-rate swaps and loan insurance as it announced a net loss of 1.04 billion pounds for 2012.
The bank’s plan will increase Barclays’s core Tier 1 capital ratio to 9.5 percent under the latest round of rules set by the Basel Committee on Banking Supervision, the FT reported, citing two unidentified people briefed on the plans. It’s unclear if the bank will detail its plan to sell CoCos at the same time, the newspaper reported. Giles Croot, a spokesman at Barclays, declined to comment on the report.
The 3 percent target, which aims to limit the risks to the taxpayer in a repeat of the financial crisis, would force banks to hold 3 pounds of equity for every 100 pounds of assets.
Barclays was one of only two British lenders to miss the regulator’s target in June, with only 2.5 percent. Nationwide Building Society, which at 2 percent also failed, was given until the end of 2015 to make up the shortfall. The PRA told Barclays it won’t get until the end of 2014 to meet the target, a person with direct knowledge of the situation said today.
The bank had sought to persuade regulators that contingent capital would be sufficient to make it safer, according to another person with knowledge of the matter. Chief Executive Officer Antony Jenkins told investors in February the bonds would be part of the capital plan.
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