Barclays finally comes to the party

Better late than never? Barclays, the bank that said it didn't need more cash, has confirmed plans for a £4bn fundraising...

Last Updated: 31 Aug 2010

After months of ignoring calls for it to follow in the footsteps of RBS and HBOS by raising capital to bolster its balance sheet, Barclays has finally bitten the bullet. This morning the UK bank confirmed a Sunday Times report that it plans to ask shareholders for extra cash, with various Asian sovereign wealth funds likely to stump up about £4bn. And given that its shares promptly jumped nearly 12%, it looks like investors are relieved that it’s taken the plunge...

Its proposed fundraising method also seems to have gone down well. In today’s statement, Barclays admitted that a plan was ‘currently under active consideration’ to raise cash ‘by way of a placing and pre-emptive offer to existing shareholders’. In other words, it will issue new shares for big institutional investors to buy, while also allowing existing shareholders to buy shares on the same terms if they want (to make sure their equity doesn’t get diluted).

This has a few big advantages over a full rights issue. First, it’s quicker – so it doesn’t run the risk of dragging on for weeks, with the bank’s share price sliding ever further south. Second, it means they can sell the new shares at a premium to the current share price, rather than at a discount. And finally, given that RBS and HBOS will have sucked up so much of investors’ cash already, it avoids the risk of there being insufficient appetite. We all know what it’s like to turn up to a party so late that all the booze has run out.

Instead, it will raise most of its cash from these secretive sovereign wealth funds (as state-owned bodies, they’re under no obligation to tell us what they’re up to). According to reports, Barclays is expected to pick three from a shortlist of at least six, with the Chinese Development Bank and Singapore government investment arm Temasek, both of whom have already bought sizeable chunks of Barclays, likely to be at the head of the queue.

But despite its apparent about-turn on the fundraising front, Barclays was putting a brave face on things this morning – it says pre-tax profit in May was ‘well ahead of the monthly run rate for 2007’, thanks to a strong showing by its retail and commercial banking arm. Even the investment banking and fund management divisions, which have been hit hardest by the market meltdown, are apparently ‘in line’ (whatever that means, exactly).

Investors will hope it doesn’t also change its tune on that front in a few months' time...

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