Barclays to issue £5.8bn new shares

Barclays said it will raise £5.8 billion pounds (€6.7 billion) in a rights offering to bolster capital as it booked its biggest charge to date for customer compensation.

The lender will offer investors one new share for every four shares they already own for 185 pence, 40 per cent less than yesterday’s closing price, London-based Barclays said in a statement today.

It will also shrink assets by as much as £80 billion to £1.5 trillion and sell about £2 billion of loss-absorbing securities to meet calls by the British regulator to reduce leverage.

Chief executive officer Antony Jenkins is selling more shares than the £4 billion analysts had anticipated after the lender's capital shortfall swelled to £12.8 billion at the end of June under the stricter Basel III rules on bank capital.

The Prudential Regulation Authority is imposing 3 per cent leverage ratio, forcing banks to hold £3 of equity for every £100 of assets to make the financial system safer.

Barclays had sought to meet the deficit by using contingent convertible bonds and retaining earnings.

“If you’re doing a rights issue then you have to clear the decks and present investors with a clear balance sheet,” said Mike Trippitt, a London-based analyst at Numis Securities who downgraded Barclays to sell this month in anticipation of a rights offering.

“You can’t do a rights issue and then follow it up with additional provisioning in the next quarter. My only concern is that they haven’t done enough.”

The lender will set aside £2 billion to cover the cost of redress. It will allocate £1.35 billion for clients sold insurance on loan repayments they didn’t need and a further £650 million for customers offered interest-rate swaps that lost them money, Barclays said.

That brings the amount Barclays has set aside to cover compensation to £5.4 billion, second only to Lloyds Banking Group’s £7.2 billion.

The shares tumbled 5.3 per cent to 292.75 pence as of 8.29am in London trading.

The stock has jumped 12 per cent this year, making it the third-best performer among Britain's five largest banks after Lloyds and HSBC Holdings.

Pretax profit excluding gains and losses on the bank’s own debt and compensation charges fell to £3.59 billion from £4.34 billion in the year-earlier period, missing the £3.7 billion estimate of 22 analysts surveyed by the company.

That decline included £640 million of restructuring costs linked to Jenkins’s overhaul of the lender to make it more profitable.

He is seeking to cut £1.7 billion in annual expenses by 2015, eliminate 3,700 jobs and reduce costs to about 55 per cent of income from 71 per cent in the first quarter.

Profit at Barclays’s investment-banking division rose to £2.39 billion from £2.24 billion, missing analysts’ estimate of £2.48 billion.

Revenue from fixed income, commodities and currencies fell 13 per cent to 3.57 billion pounds.

Barclays was one of only two British lenders to miss the regulator’s leverage target in June, with only 2.5 per cent.

Nationwide Building Society, which at 2 per cent also failed, was given until the end of 2015 to make up the shortfall.

Barclays said that under the full Basel III rules its ratio was only 2.2 per cent at the end of June, creating a capital gap of £12.8 billion.

“After careful consideration of the options, the board and I have determined that Barclays should respond quickly and decisively,” Mr Jenkins said.

Bloomberg