Barclays may seek shareholder approval for more CoCos

LONDON Mon Feb 25, 2013 11:11am EST

The Barclays logo is seen on a branch of the bank in London February 12, 2013. REUTERS/Toby Melville

The Barclays logo is seen on a branch of the bank in London February 12, 2013.

Credit: Reuters/Toby Melville

LONDON (Reuters) - Barclays (BARC.L) is considering asking its shareholders for approval to sell bonds that would convert into shares if the British bank hits trouble, a person close to the matter said on Monday.

The bonds would help the bank to meet tougher demands from regulators, requiring banks to hold more capital to safeguard taxpayers. A slice of this additional cushion can be accounted for with contingent capital bonds or other hybrid capital. Barclays could issue as much as 7 billion pounds ($10.7 billion) of contingent capital bonds, known as CoCos, which allow banks to shore up their balance sheets if their finances weaken significantly.

The bank, which raised $3 billion through a similar bond sale in November, could ask for approval from shareholders at its annual meeting on April 25, said the source, who declined to be named because proposals for the meeting have not been finalized.

Barclays would need approval from investors because existing shareholdings could be diluted if it were to sell a significant amount of bonds that convert into shares if its core capital ratio falls below a certain level.

The bank declined to comment, but it may prefer to stick with the structure used in November, selling bonds that are wiped out - rather than being converted into shares - if its core capital ratio falls below 7 percent.

Britain's Financial Services Authority took a hard line on the structure of November's deal, requiring a "high trigger" to ensure that Barclays rebuilds its capital early if its balance sheet deteriorates.

Chief Executive Antony Jenkins told analysts when he set out his strategy two weeks ago that he plans to build contingent capital "over the next few years" and expects loss-absorbing capital instruments to cover about 2 percent of its risk-weighted assets (RWAs).

RWAs are a bank's assets, usually loans, adjusted for the likelihood of non-payment and are a key determinant of a bank's capital requirements.

Jenkins expects RWAs to be about 440 billion pounds in 2015, implying contingent capital needs of almost 9 billion pounds.

The Sunday Telegraph newspaper said on Sunday that Barclays would sell up to 3 billion pounds of CoCos in early May if it gains approval from shareholders.

The greater risk attached to contingent bonds means that they are more costly to issue. Barclays is paying annual interest of 7.625 percent on the bonds it issued last year, which have a 10-year maturity.

That offer attracted $17 billion of demand, despite concern that the high trigger level would deter prospective buyers.

(Reporting by Steve Slater; Editing by David Goodman)

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Comments (1)
bababa wrote:
CoCos issue: This would seem to be a very costly transaction for the bank. In addition, the bank should be able to get necessary approvals from the shareholders and the regulating authorities as shareholders stake could be diluted. What is the objective of the bank today. It is to essentially regain customer trust, rebuild their franchise and capital and grow the business. There are other ways to look into this and ensure that they have necessary mechanism to contain their weakened financials going forward: Barclays Bank Group – Let’s do an out of the box thinking: How to re-build a dead franchise
While the global media bashing goes justifiably unabated, what Anthony Jenkins of Barclays is doing right now is to try and set a workable framework of an ambitious goal for the bank (give him a break) with all his timed initiatives to save and grow the franchise. In this process, he is informing the world that what is needed is a serious relook into the global financial banking system. As starters, he is cleaning up his house by timely communication to his staff that they better acclimatize and adapt themselves to the new morality (purpose and values) failing which … Here he is gearing to starting a long process of quality enforcement exercise of re-establishing trust among its customers, employees, investors and the society.
He knows fully well that earning huge returns for their shareholders and executives at the expense of everyone else is since done and gone. Time has come to get the shareholders buy in to actually go deep into the business mechanism and build in ethics to give back to the community and the society at large so as to reduce the growing trust deficit. What can Barclays Bank do today to radically change its business model. A strong commitment to the citizens of the country (where they operate) that they will “stand by them” in assisting in actively managing the social and environmental impact of doing business there and that they will extend “full support” to the community where they operate for profit. Today, if Barclays Bank Group wishes to go forward with redefining its ethical approach and re-developing it’s very badly dented franchise and renew business relationship with their customers, what is needed is “empathy and a very very sincere effort to win back customer trust”. One of the excellent ways to jump start this initiative is by ably demonstrating their involvement in environmental and social consideration in the countries that they are operating currently. In order to make this happen, Barclays Bank need to create a mechanism with the sole objective to better assist their key clients for environmentally-friendly or socially-responsible transactions. What does it entail: It requires a change of mindset to bring about full integration of the needs for economic and social development with that to conserve the environment. His team members should be able to specifically address the banks customers needs with empathy and create an “impact investment” situation and help with financial support and advice about projects aimed at both financial profitability and social impact (poverty reduction, job creation in disadvantaged areas, environmental footprint minimisation, stock carbon, etc.). Examples include the integration of environmental criteria into lending and investment strategy and the development of new products that provide environmental businesses with easier access to capital. This will make it possible for the population concerned to increase their income in various countries where Barclays is operating. Going forward the bank should actually apply the Equator Principles, a voluntary credit risk management framework with a set of guidelines for environmental and social risk assessment in sustainable project finance activities. I strongly feel that by adopting these principles, going forward, Barclays Bank’s will be able to ensure their genuine intention to be among the foremost in social and environmental responsibility issues so as to fight against global warming and respect for human rights. This can be a major imperative for Barclays to be effective and prove that its stands by its commitment to the community by extending support to local sustainable development efforts. This is the only method to win back customer trust and rebuild the Barclays franchise and image on a global basis.

Mar 04, 2013 10:15am EST  --  Report as abuse
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