Barclays To Raise £5.8 Billion in New Shares

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Barclays plc (LSE:BARC) announced earlier today it will have a rights issue to raise funds needed to fill the gap as a result of new capital quota mandated by the Prudential Regulation Authority (PRA).

In a statement, the British bank said it will raise £5.8 billion worth of new shares for its existing shareholders at a ratio of one ordinary share for every four existing ordinary shares at 185 pence, or a 40% discount to its 309.50 pence a share price yesterday, July 29th.

Shares of Barclays were at 288 pence per share by 11:00 GMT, following the announcement. The move is in response to PRA’s review of the capital adequacy of major UK banks, resulting in the financial watchdog’s issuing of a 3% Leverage Ratio target. The review revealed that Barclays’s leverage ratio was only 2.2% as of 30 June 2013, 0.8% short worth £12.8 billion.

“After careful consideration of the options, the Board and I have determined that Barclays should respond quickly and decisively to meet this new target,” Chief Executive Antony Jenkins, who was previously reported to be against the idea of fresh capital requirements, said in a statement issued today.

“I am certain the decisive and prompt action we are taking will leave Barclays stronger and our goal of becoming the ‘Go-To’ bank even more attainable,” Jenkins said.

The rights issue is just one of the four steps the bank plans to do to meet “the gap”. Other plans involved the issuance of additional tier 1 securities, retention of earnings and other forms of capital accretion, and a “prudent reduction of leverage exposure”

Barclays Chairman, Sir David Walker, said the PRA has agreed and welcomed the plan.

Half Year Progress

The announcement was simultaneous with the bank’s half year results, which continued to take a hit from Payment Protection Insurance (PPI) and Interest Rate Hedging Products redresses.

Barclays’ adjusted profit from January to June 2013 was down 17% compared with same period last year, to £3.591 billion, with £1.35 billion and £650 million allotted for PPI and IRHP redresses, respectively.

The bank’s statutory profit, on the other hand, almost doubled, from £871 million to £1.677 billion, or about 93% up, PPI and IRHP redresses included.

Jenkins commented that though it is the early days with a long way to go, “I’m pleased with our progress and confident that we are on track to become the ‘Go To’ bank.”

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