© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Last updated: July 29, 2013 6:27 pm
Barclays will on Tuesday launch a rights issue to raise more than £5bn, as the UK bank moves fast to come into line with British regulatory requirements on leverage, according to two people briefed on the transaction.
Antony Jenkins, who took over as Barclays’ chief executive a year ago, will also unveil details on shrinking the bank’s balance sheet.
The moves, which echo initiatives at Deutsche Bank in recent months, will leave Barclays with a core tier one capital ratio of around 9.5 per cent under “fully-loaded” incoming Basel III rules, according to one person briefed on the plan. That ratio – which measures equity as a proportion of risk-weighted assets – would bring Barclays back into line with global rivals, after a period of underperformance.
Barclays was spurred into taking the capital and balance sheet measures when the UK’s Prudential Regulation Authority last month said it had a leverage ratio of only 2.5 per cent, after factoring in expected losses and other costs, compared with a requirement of 3 per cent.
Two people involved in that exercise said Barclays had recently negotiated a longer timeframe to bridge the gap, pushing back the end-2013 deadline that former PRA chairman Lord King wanted by a year. However, the bank’s new capital plan will make any extension academic.
Barclays’ announcement on Tuesday is also set to accelerate recognition in the bank’s accounts of the kinds of forecast charges that the PRA used for its leverage assessment, particularly relating to conduct charges. Analysts are braced for higher than forecast provisions for the mis-selling of products such as PPI, interest rate swaps and identity fraud insurance.
“The only way the numbers add up for them needing to do a big rights issue is if there is a very big bill of unexpected one-off charges,” said Chirantan Barua, analyst at Sanford Bernstein.
Analysts now believe that previous expectations for PPI provisions of about £200m and swaps mis-selling of £400m could balloon to a total one-off bill, also including other charges, of as much as £2.5bn.
A third element of Mr Jenkins’ plan – to issue some form of convertible bonds – was still being finalised on Monday. Bankers said it remained unclear whether the precise details on the timing or volume of any issue would be announced at the same time as the rights issue. Analysts are expecting the bank to issue about £2bn of so-called contingent convertibles, or cocos.
Barclays is also set to announce second-quarter results on Tuesday, with a Bloomberg poll of analyst expectations forecasting a 19 per cent rise in underlying pre-tax profit to £2.1bn.
The Barclays announcement is set to come on the same day that arch rival Deutsche Bank will also unveil plans to shrink its balance sheet by up to 20 per cent alongside second-quarter results.
Barclays has lined up four book runners for its rights issue – Deutsche Bank, Credit Suisse, Citigroup and Bank of America Merrill Lynch.
Please don't cut articles from FT.com and redistribute by email or post to the web.