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Barclays ponders fundraising

Created:
16 June 2008
Updated:
17 July 2008
Written by:
John Adams

After weeks of speculation, Barclays has confirmed that it's considering a possible fundraising - the bank says it may issue new equity by way of a placing and pre-emptive offer to existing shareholders. Banking analysts are expecting that Barclays will seek to raise roughly £4bn, and at a premium to the current share price. In contrast, Royal Bank of Scotland (RBS), HBOS and Bradford & Bingley have chosen to shore up their damaged balance sheets through heavilydiscounted rights issues.

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"This is clearly less dilutionary than a rights issue and also solves the capital shortfall perception, and gives the company greater room to absorb further writedowns," says banking analyst Alex Potter of Collins Stewart. The broker estimates that the move could boost the bank's tier one (regulatory capital adequacy ratio) to a healthy-looking 6 per cent. Barclays is thought to be in talks with up to six potential investors - including Singapore-based Temasek and China Development Bank. Both already hold stakes in the group after Barclays sold shares to the pair to help fund its failed bid for ABN Amro last year. Several US banks have turned to overseas investors, rather than existing shareholders, for additional capital.

Barclays also reported that its pre-tax profit in May was "well ahead of the monthly run rate for 2007". The lender has suffered less than its rivals in the sub-prime mortgage crisis - its writedowns against such assets have reached £1.7bn so far, compared with £5.9bn at RBS and £2.8bn at HBOS.

IC VIEW:

FairlyPriced

A profit warning doesn't appear to be on the horizon and a fundraising would bolster the bank's ability to cope in today's tougher conditions. And in the longer-term, Barclays' focus on high growth overseas markets leaves the lender better placed than many peers. Still, after gaining roughly 20p since the rumours of the fundraising first appeared, the shares (at 331p) look up with events - at least until the fundraising is actually confirmed and the terms are announced. Fairly priced.

Last IC View: Fairly priced, 459p, 23 April 2008

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