Barclays stock hit by £5.8bn cash call to plug shortfall

Barclays chief executive Antony Jenkins told Robert Peston the bank had not been run recklessly

Related Stories

Barclays will issue £5.8bn in new shares as part of a move to plug a £12.8bn capital shortfall created by new regulatory demands.

The bank will also issue £2bn of bonds that are turned into shares or wiped out if the bank gets into trouble.

The size of the share sale is much larger than analysts had expected. Barclays' stock closed nearly 6% lower.

Barclays chief executive Antony Jenkins said the plan would not reduce lending to small businesses and households.

Last month, Mr Jenkins had argued against the fresh capital requirements, warning that if Barclays had to meet this tough measure it could be forced to scale back its lending to small businesses and households.

The BBC's business editor Robert Peston said: "Barclays' chief executive, Antony Jenkins, insisted to me that the flow of credit to the real economy in the UK would not shrink."

However, he added: "It means Barclays will provide fewer financial transactions to big companies, life insurers and pension funds, inter alia, to help those giant institutions reduce their risks. And to be clear that will represent a tightening of credit for those customers, so there may be a negative economic impact."

A bold plan

"I am certain the decisive and prompt action we are taking will leave Barclays stronger," Mr Jenkins said.

Start Quote

Barclays was widely regarded as one of the UK's strongest banks. It is remarkable that its regulator, the Bank of England's Prudential Regulation Authority, has ruled that it needs to fill a hole in its capital resources. ”

End Quote

The share sale will be done as a rights issue, giving existing investors the opportunity to buy new shares so their stakes will not be diluted.

The bank will also reduce the level of risky assets on its balance sheet by between £60 to £80bn.

"I think they've done the right thing. Anything else would have been a fudge, they needed to get on and raise equity," said Mike Trippitt, analyst at Numis Securities.

Tough new rules

Barclays' move comes after the banking regulator - the Prudential Regulation Authority (PRA) - issued tough new capital requirements aimed at ensuring banks are protected from the risk of investment losses, even in the event of a fresh financial crisis.

The PRA requires all banks to have a minimum leverage ratio - a measure of financial health indicating the amount of capital held by the bank relative to its gross lending - of 3%.

Under the new requirements, Barclays was found to have a capital shortfall of £12.8bn.

The Bank of England said the PRA welcomed Barclays' capital plan: "We conclude that it is a credible plan to meet a leverage ratio of 3 per cent, after adjustments, by June 2014 without cutting back on lending to the real economy."

Dividend boost

Barclays said it would boost its dividend payout in an attempt to reward shareholders for the upheaval. The bank will bring forward its target to distribute 40-50% of earnings in dividends by a year to 2014.

"The Board and I are aware of the implications of a rights issue for shareholders. We hope to balance this with reduced uncertainty in the outlook for Barclays and with enhancement of our dividend payout from 2014," said Mr Jenkins.

Performance

Meanwhile, Barclays said adjusted second quarter pre-tax profit fell 17% in the second quarter to £3.6bn.

Mr Jenkins said performance indicated "good momentum". The £3.6bn adjusted pre-tax profit figure excludes a higher-than-expected additional £1.35bn charge for Payment Protection Insurance (PPI) mis-selling costs and £650m for interest rate hedging compensation. In total, these two issues have cost Barclays £5.5bn.

PPI was designed to cover loan repayments for policyholders who became ill, had an accident or lost their jobs.

Barclays

Last Updated at 26 Jan 2015, 04:05 ET *Chart shows local time Barclays intraday chart
price change %
240.25 p -
-2.90
-
-1.19

"The eye-watering PPI compensation bill continues to escalate, showing how much banks have been in denial about the scale of their mis-selling," said Which? executive director Richard Lloyd.

"We need to see a big change in the culture of our banks to stop mis-selling scandals at source," Mr Lloyd added.

Mr Jenkins said that the bank's plans would help it in its bid to transform itself into what it calls a "Go-To" bank.

Mr Jenkins is trying to revamp the image of Britain's third-largest bank, after the aggressive culture of former Barclays boss, Bob Diamond, culminated in a £290m fine for rigging Libor rates.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Business Live

  1.  
    09:07: Market update

    As predicted, Europe's share markets have opened down. London's benchmark FTSE 100 index of top companies fell 0.57% to 6,794 points, Frankfurt's DAX 30 shed 0.53% to 10,592.97 and the CAC 40 in Paris lost 0.45% to 4,620 points.

     
  2.  
    08:57: Greek election BBC Radio 4

    Mr Varoufakis tells Today he wants to tell German voters the problem isn't that they haven't paid Greece enough to save its economy but that they have paid far too much - €240bn - in the last five years. The problem, he says, is that only 10% of that money has gone to the Greek government; the rest has gone "into a black hole of debt."

     
  3.  
    08:43: Greek election BBC Radio 4

    Mr Varoufakis quotes Dylan Thomas (which doesn't happen every day on the live page). The glimmer of light he says came on Sunday when the Greek electorate chose "to stop going gently into the night and to rage against the dying of the light." Now Greece can have a rational conversaation with its European partners about what to do next, he says.

     
  4.  
    08:37: Paper review
    papers

    Unsurprisingly, this morning's papers are united in leading on the Greek election result. The Times reports Greece "sent shockwaves across Europe," while the FT calls it a "momentous poll victory" for Syriza. The Wall St Journal says an "astonishing upset of Europe's political order" is on the cards, while the Telegraph puts Greece on a "collision course" with the rest of Europe.

     
  5.  
    08:24: Greek elections BBC Radio 4

    Yanis Varoufakis, who has just been elected to parliament in this weekend's Greek poll and has been talked of as a possible finance minister talks to Today. He says Europe, in its infinite wisdom, responded to Greece going bankrupt by "unloading the largest loan in human history on the weakest of shoulders.... on condition that the bankrupted nation was going to have to shrink its income by a quarter". He adds: "An eight or nine-year-old can understand this will not end well. What we have had since... is a kind of fiscal water boarding policies that have turned Greece into a debt colony."

     
  6.  
    08:16: Greek elections BBC Radio 4

    There are "some pretty hardcore" anti-capitalist, anti-austerity, anti NATO, anti-negotiation, anti-Europe members of Syriza, Constantine Buhayer, Greek country analyst at Jane's Intelligence tells Today. Alexis Tsipras is at the head of a political coalition that includes Maoists and Communists, he says, so keeping all of those moving parts together while trying to renegotiate the Greece's bailout terms will not be easy.

     
  7.  
    08:01: Greek election BBC Radio 4

    "The obligation on the eurozone is to come forward with an economic policy that delivers jobs and growth," Mr Osborne tells Today. It's not just about the public finances. Alongside fiscal responsibility, you have to active monetary policy and create environments in which businesses want to invest, Mr Osborne adds.

     
  8.  
    07:46: Rolls-Royce engines
    mtu

    Rolls-Royce's MTU business, which makes large diesel engines, has won a €100m order for freight locomotive engines for South African trains. The 20-cylinder engines, pictured, kick out 3,300 kilowatts of power.

     
  9.  
    07:35: Greek election BBC Radio 4

    Speaking about the huge support for Syriza, Chancellor George Osborne tells the Today programme that with the Greek economy suffering: "I can understand why you are looking for other answers". But he adds, the party's election promises will be "very difficult" to implement. He urged Syriza and eurozone policymakers to "act responsibly" over any forthcoming renegotiation of Greece's bailout.

     
  10.  
    07:27: Aer Lingus bid
    Aer Lingus jets parked in an airport

    Aer Lingus has confirmed that it has received a revised offer from British Airways owner IAG, which values the Irish flag carrier at €2.55 per share and therefore a little above €1.3bn. It says it is releasing the information "without the prior agreement or approval of IAG". Aer Ligus advises shareholders to do nothing at this stage adding it is "considering" the proposal.

     
  11.  
    07:14: Cleaning up in windows

    Safestyle UK - they of the shouty window man adverts - reported 2014 revenue increased 9% to £136m. It expects pre-tax profit will meet market expectations of £16.7m, it said.

     
  12.  
    SSE lowers gas prices by 4.1% Breaking News
    Gas rings on a cooker.

    SSE is the latest energy supplier to lower its gas prices. It says it will cut its main gas tariff by 4.1% on 30 April and extend its household gas and electricity price guarantee - meaning prices won't go up - to at least July 2016.

     
  13.  
    06:59: Greek elections BBC Breakfast
    bbc

    "The question is how Syriza is going to deliver," says Lena Komileva of G+ Economics on Breakfast. Promising to rehire workers and its other campaign pledges "without running Greece into an economic catastrophe" will be difficult to do, she says. Negotiating some leeway with the European Central Bank, European Union and International Monetary Fund - the institutions to which it owes money - will be the likely plan, she adds.

     
  14.  
    06:46: Greek elections BBC Radio 4

    So now Syriza has won this weekend's Greek election, what happens next? There are going to have to be some renegotiations. That might lead to something being put to the European Commission that can bring about a deal, Greek economist, Vicky Pryce tells Today. She says "of course, they're [the EU] not going to like it ..... and will say at first no way are we going to do a deal with you". But eventually the EU will have to negotiate, she says.

     
  15.  
    06:32: Tax collection Radio 5 live

    More on tax. Wake Up to Money presenter Adam Parsons asks, if you pay your tax, surely there's no problem? "People will always do things which are sometimes debateable if tax is payable or not," says Mr Bullock. Richard Murphy of Tax Research UK says £137m is a "paltry effort compared to the amount of tax not being paid."

     
  16.  
    06:21: Tax collection Radio 5 live

    James Bullock, a partner at Pinsent Mason specialising in tax is on Wake Up to Money. A crackdown on tax avoidance and evasion by people who HM Revenue & Customs call "mass affluent" netted 60% more money in 2014, his firm's report says. It raised £137.2m in tax, up from £85.7m in 2013. Mr Bullock warned on not damaging the economy, as "an HMRC investigation can be a very time intensive procedure" and can leave people unsure what they owe.

     
  17.  
    06:10: Greek election Radio 5 live

    More from Kerry Craig from JPMorgan on Wake Up to Money. "We are likely to see an extension of 6 months to the bailout agreement" to Greece, he says. "I don't think you'll see the Greek 10 year bonds test the highs we saw.... more and more you aren't seeing the markets price in contagion..." as Italian and Spanish bond yields are also lower than before, indicating less concern among investors, he says.

     
  18.  
    06:01: Greek election Radio 5 live
    Alexis Tsipras, leader of the Syriza party and Greece's new Prime Minister

    There'll be a great deal of interest in the Greek election from the markets and Kerry Craig from JPMorgan Asset Management is on Wake Up to Money to talk about them. "The market reaction will be fairly muted" immediately after the election since anti-austerity party Syriza was tipped to win by polls, he says.

     
  19.  
    06:00: Howard Mustoe Business reporter

    Good morning. Get in touch via email bizlivepage@bbc.co.uk or twitter @BBCBusiness

     
  20.  
    06:00: Matthew West Business Reporter

    Morning everyone. BHS owner Sir Philip Green says he is considering selling the department store chain, the euro has dived after the anti austerity Syriza party won this weekend's snap election in Greece and Aer Lingus is believed to be ready to accept a takeover bid from British Airways owner IAG. We'll bring you reaction to the Greek election result, plus anything else we unearth, as it happens.

     

Features

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.