Barclays in £4 bln share issue

Barclays will offer its existing shareholders the chance to buy up to £4 billion of shares at a discount, with outside “anchor” investors underwriting the fundraising. Barclays shares jumped over 5% to 327 pence on Wednesday as investors welcomed news that the well-flagged capital raising exercise had been successfully completed. The stock recently fell to a 10-year low at 293p. The country’s third-biggest bank has lost more than $5 billion (£2.5 billion) on assets hurt by the US subprime crisis and credit crunch, and said last week it planned to raise billions of pounds to rebuild its capital base.

“About half the capital will be directed at higher (capital) ratios and about half will be directed at new business opportunities,” said Barclays CEO John Varley. The bank has one of the thinnest capital cushions among European banks. The fundraising would have increased its core tier 1 capital ratio to 6.3% at the end of last year, from the 5.1% it reported. That ratio will stay above its target of 5.25% for “the foreseeable future” but will come down, Varley said. “We’re not going to hold it at 6.3%, we intend to use some of the capital that we’re raising to pursue new business opportunities, and the effect of that will be to bring that proforma number down,” he told reporters on a conference call.

RIVALS RETREAT

Barclays reiterated that group profit before tax in May was well ahead of the monthly run rate for 2007 and it intended to continue paying dividends in cash. The bank will raise £4 billion through a placing and open offer of £1.4 billion new shares at 282 pence apiece, a 9.3% discount to Tuesday’s closing price. Shareholders will be offered three new shares for every 14 held. Another £500 million will be raised through a placing to Japanese bank Sumitomo Mitsui Banking Corp. (SMBC) of £169 million new shares at 296 pence, a 4.7% discount.

Qatar investors are the biggest backers of the deal. Qatar Investment Authority and Sheikh Hamad Bin Jassim Bin Jabr Al-Thani have agreed to invest up to £1.8 billion and £533 million respectively. Two major existing shareholders, China Development Bank and Singapore state investor Temasek will invest £136 million and £200 million respectively. In addition, leading institutional shareholders and other investors will invest £1.3 billion. CDB and Temasek are investing at prices well below the 740 pence they paid for Barclays shares last summer, when they took stakes ahead of the unsuccessful attempt to buy ABN AMRO.

Varley said he wouldn’t rule out further acquisitions, but is mainly focused on taking advantage of higher margins and problems the credit crunch has created among rivals. “There are quite significant pricing changes that have occurred in the world as a result of market dislocation and some of our competitors have stepped back because of losses they’ve incurred or they are reconsidering strategy,” he said. “That combination presents a very interesting opportunity to put new capital to work.”

Bob Diamond, head of investment bank Barclays Capital, said there was “a terrific opportunity” to grab market share on Wall Street as “six or seven” big US banks have stepped back during the market turmoil. Barclays has already opened over 600 branches outside Britain this year and bought a bank in Russia and a UK credit card business, and Varley said it is taking “a substantially higher” share of UK mortgage lending. Barclays’ credit crunch-related losses are far lower than many rivals, but the bank said it had better quality assets and was managing risk better than others. Its new outside investors and the sponsors of the offer had carried out thorough due diligence and verified the level of writedowns, Varley said. (Reuters)