Barclays has won shareholder approval for its controversial capital raising by the skin of its teeth.
Without Legal & General’s last minute decision to throw the weight of its 5 per cent shareholding behind proposals to raise about £7bn in capital, mostly from Middle East investors, the deal may not have got through.
The British bank needed three-quarters of votes cast at yesterday’s shareholder meeting to support the deal. In the end, after L&G publicly withdrew its opposition, between 13 and 15 per cent of votes cast were against the various resolutions.
Barclays’ investors are still angry at the bank for turning its back on the UK government’s bail-out in favour of a more expensive deal offering Middle East investors preferential terms. Shareholders will not forgive the board easily for over-riding the cherished right of first refusal to new shares.
The rights issue unveiled by Standard Chartered on Monday, and its respect for shareholder rights, shows how different things might have been, although in fairness Barclays was in a tighter spot than its Asia-focused rival and needed to raise much more money.
StanChart shareholders are supporting plans to raise £1.8bn by offering shareholders 30 new shares for every 91 they own. Admittedly, the terms of the deal underscore the risks associated with banking rights issues in this market: StanChart has priced the offering at a 49 per cent discount to its closing price on Friday. It is also paying about £54m in fees to banks and investors underwriting the deal.
Peter Sands, StanChart’s chief executive, said the bank explored a range of options but was determined shareholders could participate. “We very deliberately chose...a rights issue because we think it is important to respect pre-emption.”
One of StanChart’s biggest investors – also a highly critical Barclays shareholder – said: “Standard Chartered is raising money in a sensible way and the management is highly regarded.”
Peter Montagnon, director of investment affairs at the Association of British Insurers, said the issue was a “blue print” for the future.
The ABI, the government and the Financial Services Authority, has been working on ways to speed up and streamline rights issues.
This follows a tortured series of rights issues that jeopardised the survival of some UK banks this year.
StanChart streamlined the process by getting blanket approval in May at its annual meeting, allowing the bank to raise up to a third of its share capital without having to call a special meeting for approval.
Companies routinely ask for this authority but it is a mark of shareholders’ confidence in a company’s management that they give it.
In contrast, Marcus Agius, Barclays’ chairman, told investors yesterday that options were limited. The board was faced with a ”devil’s dilemma” where it needed a lot of capital quickly, but could not find a way to allow shareholders to participate. In the end, it decided it was more important to end uncertainty about the capital base.
“Our concern was that further pressure on our share price would feed through to a loss of depositor and investor confidence,” Mr Agius said. “There have been many examples...where this has happened and dire consequences have resulted when swift corrective action was not taken.”