LONDON (Reuters) - Barclays (BARC.L) is raising 5.8 billion pounds ($8.9 billion) from its shareholders to help plug a larger-than-expected capital shortfall identified by Britain's financial regulator at the 320-year-old bank.
The Bank of England's Prudential Regulation Authority (PRA) said on Tuesday Barclays needed an extra 12.8 billion pounds to strengthen its capital reserves against potential market shocks, more than an estimate of about 7 billion a month ago, due mainly to tougher European rules on the way banks measure risks.
It gave the bank a year to fill the gap, requiring it to speed up a plan to rebuild capital and turn to shareholders.
Barclays, Britain's third biggest bank and the sixth largest in Europe, announced the fundraising alongside another 2 billion pound charge for mis-selling products and said it was also pushing back a key profitability target.
Banks across Europe are battling to meet tougher regulations aimed at preventing a repeat of the financial crisis, and many are struggling to move on from past misdeeds. Deutsche Bank (DBKGn.DE), for example, missed second-quarter profit forecasts on Tuesday, hit by higher legal costs.
Barclays also continues to be haunted by a fundraising with Qatari investors in 2008, which is being investigated by British and U.S. authorities. The bank said Britain's Financial Conduct Authority made preliminary findings against it on June 27 related to some of the deal's commercial agreements, and that it responded last week by contesting the findings.
Chief Executive Antony Jenkins said he was reacting "quickly and decisively" to the PRA's demands and the regulator was happy with his plan, which also includes selling 2 billion pounds of bonds that convert into equity or are wiped out if the bank hits trouble, and shrinking loans a further 65-80 billion pounds.
"I think they've done the right thing. Anything else would have been a fudge, they needed to get on and raise equity," said Mike Trippitt, analyst at Numis Securities.
The rights issue, the biggest by a British bank since 2009, will offer shareholders one new share at 185 pence - 40 percent below Monday's closing price - for every four currently owned
It will raise the equivalent of 15 percent of Barclays' market value and allow existing shareholders to buy discounted shares first, giving them a chance of maintaining their stakes and avoiding the criticism of the 2008 fundraising when the arrival of new investors reduced the holdings of existing ones.
Rights issues cut earnings per share, and at 1120 GMT Barclays shares were down 7.3 percent at 286.7 pence, the weakest performance in the European bank index .SX7P.
Regulators in Britain, Switzerland, the United States and elsewhere have been increasing scrutiny of leverage ratios, which do not rely on banks' own risk assessments but express a bank's capital as a proportion of its overall assets.
Barclays said the PRA had estimated its leverage ratio at 2.2 percent at the end of June, lower than the 2.5 percent estimated last month, and compared with the regulator's goal for banks to have a ratio of at least 3 percent by June 2014.
Barclays said it was pushing back its target to deliver a return on equity above its cost of equity - previously 11.5 percent - to 2016, a year later than Jenkins set out in a far-reaching restructuring unveiled in February.
But it bumped up its dividend payout expectations, saying it planned to distribute 40-50 percent of earnings in 2014 compared with the 30 percent previously predicted.
Barclays set aside another 1.35 billion pounds to compensate customers mis-sold payment protection insurance (PPI), taking its total provision for that to 4 billion pounds.
British banks have now put aside more than 15 billion pounds to cover PPI compensation, and Barclays' latest move signals rivals may have to bump up provisions too.
Barclays also set aside 650 million pounds more for mis-selling complex interest rate hedging products to small firms.
The bank reported a pretax profit of 1.7 billion pounds for the six months ended June, almost double its 871 million pound profit a year ago. Its adjusted pretax profit was 3.6 billion pounds, just below the average forecast of 3.7 billion from 22 analysts polled by the company.
It was cautious on the outlook and operating environment and said it would speed up cost cutting. Jenkins' restructuring plan absorbed 640 million pounds of costs in the first half.
Barclays will pay about 130 million pounds in fees and commission on the rights issue, which is underwritten by Credit Suisse (CSGN.VX), Deutsche Bank (DBKGn.DE), Bank of America Merrill Lynch (BAC.N) and Citi (C.N). The offer will be launched in September, and new shares are due to be issued on October 3.
There had been speculation Barclays might raise extra equity, but Jenkins was reluctant to do so with the shares at a discount to book value. The stock has rallied over 70 percent in the past year, but still trades at about 0.7 times book value.
Investors said Barclays' move could dent the UK government's plans to start selling its shares in Lloyds (LLOY.L) later this year, by sucking up market demand for bank stock.
The PRA said it was confident the bank's deleveraging plan would not cut lending to the British economy.
(Editing by Mark Potter)