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Barclays to sell shares to fill big capital hole

[July 30, 2013]  LONDON (AP) -- British bank Barclays said Tuesday it will sell 5.8 billion pounds ($8.9 billion) in new shares to make up for a big capital shortfall on its balance sheet and satisfy new regulatory requirements meant to prevent a repeat of the 2008 crisis. Shares in the company plunged almost 7 percent on the news.

The sale of stock to existing shareholders was announced along with the bank's earnings statement, and came after the Prudential Regulation Authority told Barclays and other lenders to increase their capital as a buffer against future crises.

Barclays said its leverage ratio -- the amount of capital held against total assets -was 2.2 percent compared with the new requirement of 3 percent. That translated to a shortfall in capital of 12.8 billion pounds ($19.6 billion).

"It's not a hole in the balance sheet. It's the product of a series of calculations and adjustments both to the gross side of our balance sheet and our capital," Chief Executive Antony Jenkins told the BBC. "We haven't been trading recklessly. This is the product of a long set of conversations with the PRA."

Investors were jolted by the figures, however, and sent shares in Barclays 6.7 percent lower.

The British regulator has increased pressure on banks to hold more capital at a time when they are also being pushed to lend more to businesses and families to kick-start the economy.

Besides the share issue, Barclays' plan also calls for a reduction in leverage -- the amount of debt used to finance investments -- and the retention of earnings. That could mean lower dividend payments to shareholders. The bank will also issue 2 billion pounds of bonds that could be easily converted into shares -- or eliminated if the bank gets into trouble.

Regulators said the discussions with Barclays were productive and welcomed the bank's plans.

"We have considered all elements of the plan, including new capital issuance, planned dividends and management actions to be taken and, based on Barclays' projections, conclude that it is a credible plan to meet a leverage ratio of 3 percent, after adjustments, by June 2014 without cutting back on lending to the real economy," the PRA said in statement.

In its earnings statement, Barclays reported net income of 671 million pounds in the first half of 2013 compared with 148 million pounds last year.

[Associated Press; By DANICA KIRKA]

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