Bruised Barclays gets backing for capital plan

LONDON (Reuters) - Barclays Plc (BARC.L) won approval for its controversial 7 billion pound ($10.4 billion) fundraising, but the British bank was slammed by shareholders for ignoring their rights and favoring two big Middle East investors.

Barclays said on Monday about 87 percent of investors who voted had backed the plan, although approval dropped to 78 percent if abstentions were included. Barclays was expected to win approval from the 75 percent of voters it needed.

Many investors said they had been forced to back the plan and some voiced fury at a stormy meeting of about 310 investors.

"I feel like we've all been invited to a game of Russian roulette. The only difference is all the chambers are loaded," said Trevor White, a private investor since 1962.

Chairman Marcus Agius said the bank was faced with a "devil's dilemma" and needed to secure funds quickly and with certainty. Unprecedented turmoil in financial markets had created a risk that customers and investors would lose confidence and cause a "death spiral" that could endanger the bank, he said.

Investors were angered they were not given first refusal on new capital -- known as pre-emption rights -- and that Qatar and Abu Dhabi investors are getting more attractive terms than existing shareholders.

Qatar's sovereign wealth fund and Sheikh Mansour Bin Zayed Al Nahyan, a brother of Abu Dhabi's ruler, are investing up to 5.3 billion pounds and will be paid 14 percent annual interest on some of the capital, which also carry warrants.

Institutions joined the chorus of disapproval and some private shareholders called for Agius and other board members to step down.

Top 20 investor F&C said it would vote for the deal but did not like the way it was structured, echoing comments from Legal & General last week.

"We have really been left with no reasonable alternative. The consequences of voting against would make a bad situation worse," said George Dallas, director of corporate governance at F&C. The fund manager owns a 0.6 percent stake, Thomson Reuters data shows.

Agius said he regretted leaving investors unable to participate in the offer, but noted rights issues were too risky in the current environment.

"The greater danger was not getting on with it and securing the money," Agius said.

"It's hard to overdramatize the nervousness in the market in the run up to that weekend," he said in reference to Oct 11/12, when UK regulators forced banks to significantly increase capital ratios and other governments moved to shore up the financial system.

By 10:45 a.m. EST, Barclays shares were up 10.7 percent to 147.4 pence, outperforming a 5 percent rally by the DJ Stoxx European bank sector .SX7P.

CONSTRAINED BY TIME

Barclays opted to raise funds privately rather than take part in a 37 billion pounds UK government bailout partly because it feared the conditions attached might force it to neglect overseas growth and its freedom to make commercial decisions on dividends and lending, Agius said.

Barclays last week tried to head off the backlash by offering investors a slice of the capital earmarked for Middle East backers, scrapping executive bonuses and saying all its board will stand for re-election next year.

Banks around the world have had to be rescued or raise billions of pounds to rebuild capital after losses on risky assets and the prospect of big losses as economies deteriorate.

Citigroup (C.N) was bailed out by the U.S. government on Monday and Standard Chartered (STAN.L) launched a 1.8 billion pound rights issue.

Britain's government has said it expects banks receiving public money -- Royal Bank of Scotland (RBS.L), Lloyds TSB (LLOY.L) and HBOS HBOS.L -- to help support the flagging UK economy by keeping lending availability at 2007 levels.

Agius said Barclays had made "significantly more" UK home loans and lending to small- and medium-sized business this year.

"But we absolutely need to be in control of the terms that we make lending available," he said.

(Editing by Andrew Macdonald)