Barclays seeks $9 billion from shareholders to appease regulator

LONDON Tue Jul 30, 2013 12:00pm EDT

The logo of Barclays bank is seen at its office in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

The logo of Barclays bank is seen at its office in the Canary Wharf business district of London April 1, 2013.

Credit: Reuters/Chris Helgren

LONDON (Reuters) - Barclays 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 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.

That was higher than an estimate of about 7 billion a month ago, due mainly to tougher European rules on the way banks measure risks.

The PRA gave the 320-year-old bank a year to fill the gap, requiring it to turn to shareholders to speed up its plan to rebuild capital.

"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.

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 profitability target.

Banks across Europe are battling to meet tougher regulations aimed at preventing a repeat of the financial crisis, and many are also struggling to move on from past misdeeds. Deutsche Bank, 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, which it is contesting.

Barclays Chief Executive Antony Jenkins said he was reacting "quickly and decisively" to the PRA's demands and the regulator was happy with his plan. It also includes selling 2 billion pounds of bonds that convert into equity or are wiped out if the bank hits trouble, and shrinking loans by a further 65-80 billion pounds or more, notably in the investment bank.

"What we're doing today is all about certainty...it's about certainty on capital, certainty on timing and certainty on conduct risk. That's what really matters to shareholders," said Jenkins, who took over last August.

Standard Life, one of the biggest investors in Barclays and the UK stock market, criticized regulators for a "lack of stability or consistency" in capital requirements.

The regulatory regime "appears both capricious and hostile to banks and is in consequence raising the cost of capital for the banking sector," said David Cumming, head of equities at Standard Life Investments.

Another of the 20 largest investors in Barclays said the bank's strained relationship with its regulator in the past had probably not helped. "I do slightly wonder whether they are paying the price for the hubris of the past," he said.

Rights issues cut earnings per share, and Barclays shares closed 5.7 percent lower at 290.3 pence, the weakest performance in the European bank index.

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 to maintain their stakes and avoiding the criticism that the 2008 fundraising was too generous to new investors.

Regulators are 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.

MIS-SELLING

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.

It was cautious on the outlook and operating environment and said it would speed up cost-cutting. The bank spent 640 million pounds on restructuring in the first half.

Barclays will pay about 130 million pounds in fees and commission on the underwritten rights issue. The offer will be launched in September, and new shares are due to be issued on October 3.

(Additional reporting by Chris Vellacott and Laura Noonan; Editing by Mark Potter and Erica Billingham)

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