Barclays Offers CoCos as BOE Says Banks Lack $38 Billion CapitalKatie Linsell
Barclays Plc is marketing a sale of contingent convertible notes as the Bank of England said U.K. lenders face a capital shortfall of at least 25 billion pounds ($38 billion).
Britain’s second-largest bank by assets is arranging investor meetings for an issue of so-called CoCos, which convert to equity or are written off once an issuer’s capital ratios fall below a preset level. Barclays said yesterday it wants to redeem as much as $1 billion of subordinated bonds that can also count as capital.
British lenders face losses on loans that may exceed provisions by 30 billion pounds, while future conduct costs could be 10 billion pounds more than banks expect, the BOE said today. An examination by the Financial Services Authority showed lenders underestimated assets weighted for risk by 170 billion pounds, leading to a 12 billion-pound capital shortfall.
“Barclays is reasonably well capitalized compared to its U.K. and European competitors,” said Paul Smillie, a Singapore-based banking analyst at Threadneedle Asset Management, which oversees about $45 billion of fixed-income securities. “If this issuance helps to open up a market for contingent capital instruments from the British banks, then it will make it easier for them to issue more in the future.”
Barclays sold $3 billion of 10-year contingent capital notes in November. Buyers will lose all their money if the bank incurs losses that reduce its so-called core Tier 1 equity to 7 percent or lower of risk weighted assets.
Bonds designed to absorb losses before a lender collapses are a product of the 2008 financial-sector crisis, when debt investors were made good while banks had to be propped up by governments to prevent contagion to the wider economy.
Phillippa-Jane Vermoter, a Barclays spokeswoman in London, declined to comment on the bond sale.
Barclays will act as global bookrunner for the deal while Bank of America Merrill Lynch, BNP Paribas SA, Morgan Stanley and Wells Fargo Securities LLC will act as joint bookrunners, according to a person familiar with the transaction.