Buoyant Barclays in £7bn mini-rally

Jun 18 2008 by Tony McDonough, Liverpool Daily Post

ANALYSTS say Barclays could raise up to £7bn as part of a possible fundraising effort revealed this week. The banking giant announced on Monday that it was considering issuing new shares by way of a placing and a pre-emptive offer to existing shareholders.

Barclays said plans to issue shares to new and existing share-holders were under “active con-sideration” after weekend reports the bank was holding talks with six so-called sovereign wealth funds to raise around £4bn.

The cash call would see Barclays shore up its balance sheet without resorting to a full-blown discounted rights issue. Under the structure, it would be allowed to issue new shares up to one-third of its existing total without needing to call an extraordinary general meeting.

After rises in its share price on Monday and yesterday, following the announcement, the group was valued at around £22bn, meaning it could raise up to £7bn of extra funds under the plan.

A mini-trading update from the bank was also well received, as Barclays reassured that profits before tax in May were “well ahead” of last year’s monthly run rate. The shares hit a 10-year low last week of 293p, and are still down by a quarter in the last seven weeks, hit by concern about the bank's capital position and slowing UK housing and capital markets.

"The market is pretty relieved that they have the confidence they can get this away," said Colin Morton, fund manager at Rensburg Fund Management and a holder of Barclays stock.

"The market has known they would have to raise some cash, and the fact they've confirmed it and said profits are holding up pretty well have conspired to give it a mini-rally," he said.

Investors reacted positively to the plans, as it should see the share price affected less than under a heavily discounted rights issue, remove the threat that unwanted stock is placed in the market, and rebuild the bank's capital to near average levels.

Mr Morton and other share-holders said more details were needed before committing to support the issue.

The proposed structure would also enable Barclays to sidestep the volatile share trading seen during Royal Bank of Scotland's recent record rights issue and in the run-up to cash calls by Halifax Bank of Scotland and Bradford & Bingley.

Raising £4bn would lift Barclays' core Tier 1 capital ratio to near 6%if there were no more big writedowns, analysts esti-mate.

That is regarded as a com-fortable level for banks in current turbulent conditions.

Other UK bank stocks also rose strongly yesterday, with HBOS and RBS both up.

James Invine, an analyst at Dresdner, upgraded his rating on Barclays to "hold" and RBS to "add", saying he was turning more positive on selected UK banks.

Barclays is understood to be looking to bring on board three investors, reportedly holding discussions with groups includ-ing the China Development Bank and Temasek, a Singaporean government-backed fund – nurs-ing paper losses from the stakes they bought in Barclays last year.

It is thought that the sovereign wealth funds will effectively underwrite the placing, commit-ting to buying the full amount of stock up-front, so that there are no unwanted shares left over if existing investor demand is low.

tonymcdonough