Barclays to raise £5.8 bn from shareholders to address capital shortfall

Barclays plans to raise £5.8 billion from its shareholders to fill a greater-than-expected capital shortfall identified by the UK's financial regulator at the 320-year-old lender.

The Prudential Regulation Authority (PRA) of The Bank of England said today that Barclays needed an extra £12.8 billion to strengthen its capital reserves against potential market shocks, greater than an estimate of about 7 billion a month ago, due mainly to tougher European rules on the way banks measured risks.

It gave the bank a year for filling the gap, that would require speeding up of a plan for rebuilding capital and turning to shareholders.

Barclays, the third biggest bank in the UK and the sixth largest in Europe, announced the fundraising with another £2 billion charge for mis-selling products adding that it would also be pushing back a key profitability target.

Banks across Europe are struggling to meet tougher regulations aimed at avoiding a repeat of the financial crisis, with many looking to move ahead closing the chapter on misdeeds of the past. Deutsche Bank, for instance, fell short of second-quarter profit forecasts today, hit by higher legal costs.

Barclays has also continued to carry the taint from a  dubious fundraising exercise involving Qatari investors in 2008, amid investigations by UK and US authorities.

The capital-raising plan comes even with Barclays repeatedly playing down concerns over the strength of its balance sheet. It said it did not need to issue new shares.

Speaking to analysts, Barclays' chief executive, Antony Jenkins said the bank was caught unaware when UK PRA ordered it in June to boost the amount of equity it held against total assets, a measure called the leverage ratio. Stricter European capital rules published at the end of last month added to pressure on the bank.

According to the bank, it needed £12.8 billion to push that ratio over 3 per cent, the minimum required by the PRA, a gap much larger expectations of analysts.

Jenkins said in a call with analysts that it was in Barclays' shareholders' interest that he would be decisive and swift in addressing the issue.

The rights issue would be underwritten by Credit Suisse, Deutsche Bank, Bank of America Merrill Lynch and Citigroup.

Meanwhile, the bank reported a £168 million net loss for the second quarter, after making a £746 million net profit in the second quarter of 2012.