(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By George Hay
LONDON, May 1 (Reuters Breakingviews) - Barclays (BARC.L) is
under the spotlight after Deutsche Bank’s (DBKGn.DE) capital
U-turn. Having trumpeted an organic capital strategy since being
appointed co-chief executives of the German bank last year,
Juergen Fitschen and Anshu Jain finally opted for a 3 billion
pound equity placing to bolster capital. Barclays new boss
Antony Jenkins doesn't look immune to a similar volte face.
It’s not certain he will have to issue equity. Barclays’
recent strategy plan requires only that the bank attains a 10.5
percent core Tier 1 capital ratio under new “Basel III” rules by
2015. And the Bank of England recently stated UK banks only had
to attain a lowly 7 percent by the end of 2013. Barclays is at
But that’s not the whole story. UK peers like Royal Bank of
Scotland (RBS.L) and Lloyds (LLOY.L) are also capital laggards,
but these are both shrinking back to their domestic base.
Investors may want a global investment bank like Barclays to at
least attain parity with Deutsche’s 9.5 percent ratio.
The other problem is that regulators are capricious.
Deutsche’s placing is partly because its own supervisor, BaFin,
has become more concerned over group capital getting trapped if
its U.S. counterpart requires European banks with New York
investment banks to subsidiarise. Although Barclays has fewer
group assets in the United States – just under a quarter against
over a third for Deutsche, according to Morgan Stanley – it
could still face a shortfall if the BoE decided to follow
To complicate things further, Barclays doesn’t know for
certain whether 4 billion pounds of recently raised contingent
convertibles, which turn into equity if Barclays’ core Tier 1
capital ratio sinks below 7 percent, will count as a buffer.
How would Barclays plug a gap? At its current market
capitalization, it could probably only get away with a 3.7
billion pound Deutsche-style private placement without breaching
pre-emption rights: against 4.4 billion pounds that would be
needed to get up to Deutsche's 9.5 percent ratio. Qatar, which
holds 6 percent of its shares, may baulk at supporting a rights
issue when a Serious Fraud Office probe hangs over certain
commercial arrangements between Barclays and itself around the
time of its capital support in 2008.
None of these headaches are insuperable, especially as
Barclays should be able to close some of the gap organically.
But as Jain and Fitschen have now found, passing up the chance
to raise capital during your honeymoon period can prove a
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- Barclays shares fell 1.3 percent to 288.6 pence on April
30, following news of Deutsche Bank’s 2.96 billion pound capital
raising. Deutsche Bank shares rose 6.1 percent to 34.9 euros.
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Chris Hughes and David Evans)
Keywords: BREAKINGVIEWS BARCLAYS/
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