Barclays announces H1 figures and rights issue

Deadlines for meeting debt ratios have been brought forward, forcing Barclays’ hand into a rights issue.

There are two sides to today’s news flow from Barclays. Firstly we have the bank’s first-half figures, which are down 17% year-on-year due to a number of reasons. A fresh £1.35 billion has been earmarked for the mis- selling of PPI, taking Barclays' total to £4 billion. This makes up the largest share of the £15 billion that UK banks have had to set aside so far. The bank has also had to set aside £650 million for the mis-selling of interest rate hedging policies. The third-largest cost has been the increase in operating costs of £640 million for the change in direction that the company is trying to follow. It appears that Mr Jenkins’ dreams of a retail-friendly firm do not come cheaply.

The second influential issue is the fact that the Prudential Regulatory Authority has moved the deadline for Barclays to meet its debt ratio requirements from 2015 up to June 2014. The target for this is 3%, and at present the bank is running at 2.5%. In order to raise the funds necessary to meet this target, Barclays has announced a rights issue. For every four shares held, shareholders will be entitled to one new share at an exercise price of 185p. With the shares closing on Monday 29 July at 309p, the new (post-rights issue) fair value is 290p, which is broadly where the shares started trading this morning. This rights issue is fully underwritten, and arguably if other banks find themselves in a similar situation it is best to be the first looking for funds rather than the last.

Barclays plc chart
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