* Barclays must raise about 7 bln stg to meet demand
* 5 billion pound rights issue to be announced as early as
* Price will be at "significant double digit discount"
* Convertible bonds also seen as likely
* Barclays' share sale could dent plans for Lloyds stake
* Shares in Barclays down 3.5 percent
By Matt Scuffham, Tommy Wilkes and Sophie Sassard
LONDON, July 29 Barclays is planning to
issue about 5 billion pounds of new shares to help plug a 7
billion pound capital shortfall triggered by new UK regulatory
demands, two sources familiar with the matter told Reuters.
Barclays said on Monday it had been in talks with Britain's
financial regulator and would update the market on its capital
plans when the bank publishes half-year results on Tuesday. Two
sources told Reuters the update would include the announcement
of a 5 billion pound share sale.
The sources said the sale will be done as a rights issue,
where existing investors are given the opportunity to buy new
shares so their stakes will not be diluted.
One source familiar with the matter told Reuters the shares
would be offered at a "significant double-digit discount" to
Barclays' closing price of 308 pence, as is the convention in
the UK. Barclays declined to comment.
Since the shares are sold to existing investors, the
discount only matters if investors do not take up all of their
allocation and the shares are then sold to outsiders. Such
rights issues typically take between six to eight weeks to
complete in the UK.
Barclays' shares fell as much as four percent on Monday on
reports that the bank would issue new equity. The bank was the
biggest faller in Britain's FTSE 100 share index. Barclays'
stock has more than doubled in value over the past 12 months.
Barclays and other European banks are under pressure to
comply with new regulation to constrain the industry's
risk-taking that could prevent a re-run of the taxpayer bailouts
that followed the financial crisis.
Regulators' new focus is on banks' leverage ratios, which do
not rely on banks' own risk assessments but express a bank's
capital as a proportion of its overall assets.
This has raised the stakes for banks across Europe. Deutsche
Bank is expected to unveil plans to shrink its
balance sheet when it reports second-quarter results on Tuesday.
Barclays needs about 7 billion pounds to lift its leverage
ratio to a 3 percent minimum demanded by the UK regulator from
an estimated 2.5 percent, taking into account future losses on
bad loans and mis-selling compensation.
Two of the people familiar with Barclays' plans said the
bank's efforts were also likely to include convertible bonds,
bonds that convert into equity if a bank's capital falls below a
Barclays declined to comment further on its plans. The
Prudential Regulation Authority (PRA) also declined comment.
One of Barclays biggest 20 investors told Reuters he had not
been contacted about any capital raising plans.
"I'm not hugely happy about it but it's been enforced upon
them. Does the bank definitely need this extra capital? Probably
not. But if the PRA says it, then the bank's hands are tied,"
the investor said.
A sale of new shares by Barclays, meanwhile, could dent the
British government's chances of offloading around a quarter of
its 39 percent stake in Lloyds Banking Group, worth
about 5 billion pounds, later this year.
The Lloyds sale was expected in September or October,
according to sources with knowledge of government thinking.
"If Barclays taps the market for 4 billion pounds of new
bank equity, then it might take out some of the firepower ahead
of Lloyds share sales later in the year," the investor said.
Barclays' plans could be determined by how much time it is
given by the regulator to meet the leverage ratio target. It is
expected to be given until the end of 2014 but a tighter
deadline would make a sale of new shares more likely.
Sources familiar with the matter said last week that a
rights issue was an option for Chief Executive Antony Jenkins,
but not his preferred route. But Jenkins has remained in talks
with regulators about how to hit the target over recent days and
an equity fundraising has become more likely.
The bank has to make sure any bonds it sells would help its
leverage ratio under the UK rules. To do this, the bonds would
have to count towards Tier 1 capital, the key measure of a
bank's financial strength. Similar bonds Barclays has sold,
known as CoCos, have been classed as Tier 2 capital.