Is Barclays banking on a £4bn rights issue?

Under new leverage rules, the bank needs to plug a £7bn capital hole - just as the SFO secures an extra £2m for an investigation into money invested in the bank in 2008.

by Emma Haslett

Last week, business secretary Vince Cable accused some factions of the Bank of England of ‘Taliban’-like behaviour over new leverage ratio requirements, which essentially require banks to hold capital worth 3% of the value of their loan books.

The effects of the new requirements are clearly being felt in the boardrooms of the UK’s largest banks. Barclays is reportedly in talks with the Prudential Regulation Authority (the Bank of England body which supervises banks) to launch a £4bn rights issue, after it realised the rules could lead to a capital hole as large as £7bn. Not the kind of cash you find down the back of the sofa….

To be fair to Barclays, the rules weren’t supposed to come in until 2019 – but as one of his final acts as Bank of England governor, in October (now Lord) Mervyn King fast-tracked the legislation, meaning it could come in as soon as 2015.

The bank is expected to announce the rights issue as part of an interim results statement tomorrow, when it will also update City on its PPI situation, the cost of which is thought to have risen by £800m.  

So yet another a difficult start to yet another difficult week for the bank, which over the weekend was also the subject of claims the Serious Fraud Office has secured an ‘extra’ £2bn for an investigation into its emergency fundraising five years ago.

Barclays was one of the few UK banks not to turn to the government for help as its rivals crashed and burned around its ears. Instead, in June 2008, it turned to the Qatari sovereign wealth fund, Qatar Holding, for £4.5bn, followed by a second £7.3bn tranche of capital in October 2008.

The original allegations the SFO, along with the Financial Conduct Authority, had been investigating, were that Barclays had loaned Qatar Holding some of the money it had then reinvested in the bank. The FT reported yesterday, though, that the FCA had taken a ‘back seat’ to allow the SFO to ‘broaden its probe’ into other parts of Barclays’ fundraising.

The SFO itself couldn’t be described as ‘well-funded’ – for 2015-16, it’ll get about £30m a year (a tenth of the amount wronged property developers the Tchenguiz brothers are currently suing it for). But this is the second time in recent months its director, David Green, has negotiated ‘blockbuster’ funding to allow it to look into a special case.

So the £2m Green has reportedly secured is a sizeable proportion of annual budget – which suggests the government must be pretty keen to secure a prosecution. Just imagine the headlines…

- Image credit: Flickr/Dominic's pics

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