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Barclays announced on Tuesday that it was raising up to £7.8 billion, or $12 billion, in new capital as the British bank reported a £168-million loss in the second quarter of the year.
Barclays, beset by a series of scandals that has forced it to pay huge settlements and set aside billions of pounds for legal costs, has come under pressure from British authorities to improve its capital position after local regulators said the firm's so-called leverage ratio, a measure of how much borrowed money a bank uses, was too low.
Legal costs continued to hit the bank's second-quarter earnings, leading to the second-quarter loss, compared to a £746 million profit in the last year's comparable quarter. Barclays' second-quarter revenue fell less than one per cent, to £7.3 billion.
As part of its efforts to raise new funds, the British bank said on Tuesday that it would raise £5.8 billion through a rights issue of stock.
The offering, to be launched in September, will give existing investors the opportunity to buy the new shares at a 35 per cent discount to Barclays' closing share price on Monday, according to a company statement.
"The £5.8-billion equity increase is much larger than expectations," Citigroup analysts said in a note to investors on Tuesday.
The British firm also plans to issue up to £2 billion of so-called contingent capital, financial instruments that convert to equity if a bank's capital falls below a certain threshold, and reduce assets on its balance sheet by up to £80 billion to improve its leverage ratio to three per cent by June, 2014.
"The board and I are aware of the implications of a rights issue for shareholders," Barclays' chief executive, Antony Jenkins, said in a statement. "We hope to balance this with reduced uncertainty in the outlook for Barclays and with enhancement of our dividend payout from 2014."
The bank said the capital raising and other efforts to improve its balance sheet would help to close a £12.8-billion gap that the Prudential Regulatory Authority, a British regulator, said had reduced Barclays' current leverage ratio to 2.2 per cent.
"We have considered all elements of the plan, including new capital issuance, and, based on Barclays' projections, conclude that it is a credible plan to meet a leverage ratio of three per cent," the British regulator said in a statement on Tuesday.
Since taking over as Barclays' chief executive last August, Jenkins has been trying to remould the bank after it was hit by a series of scandals.
Barclays has announced plans to shift its focus towards a smaller number of activities in its investment banking operations, as well as reduce its exposure to unprofitable business units in Continental Europe.
Despite the efforts, Barclays continues to suffer from legal problems, and set aside a further £2 billion during the second quarter related to what regulators found to be the inappropriate selling of insurance and complex financial hedging products to its clients.
The legal costs include a £1.35-billion charge connected to the inappropriate selling of insurance products to consumers, who were either unaware they had been sold the financial products, or have struggled to make claims on the policies.
Barclays has set aside almost £3 billion since the beginning of 2012 to cover legal costs related to the sale of products ruled out of bounds by regulators.
The bank also said on Tuesday that it had made an additional £650 million provision related to the inappropriate selling of financial hedging products to small and medium-sized business customers.
During the second quarter of the year, Barclays' investment bank reported a meagre increase in its pre-tax profit, to just over £1 billion, as the firm's trading activity was weighed down by volatility in the world's financial markets.
The firm's corporate banking division, however, doubled its pretax income, to £219 million, over the same period, while the bank's credit card division saw its income rise two per cent, to £412 million.
"It is early days, and there is a long way to go, but I'm pleased with our progress," Jenkins said in a statement.
Barclays, Credit Suisse, Deutsche Bank, Bank of America Merrill Lynch and Citigroup are coordinating Barclay's planned £5.8-billion capital offering.
©2013 The New York Times News Service
