Barclays attempts to avoid row with new share offer

Regulators are demanding that bondholders help strengthen a bank if its capital position weakens, which would provide greater protection for depositors and taxpayers. Banks are trying to develop the best structure for such debt.

Barclays in recent months has issued £2.6bn of contingent capital debt, whose value is wiped out if the bank’s core capital ratio falls below seven per cent.

It has said it may issue £6bn more contingent debt, some of which could convert into ordinary shares in the event the ratio is breached, or contingent convertible debt (CoCos).

The bank will next week ask shareholders to approve this type of debt instrument.

Barclays said it intends to give them the opportunity to buy any shares from a conversion of debt to enable them to avoid dilution of their stakes. This would also offer an exit for bondholders who don’t want to own shares, but it is not clear whether they would be forced to offer the shares.

The dilution issue is sensitive for Barclays, which provoked fury in 2008 when new Middle East backers invested in the bank on terms that many existing shareholders said was more attractive than they could get.

CoCos have been issued by other banks, but there is no standardised structure. How they will work at times of stress remains uncertain.

The Association of British Insurers (ABI) failed to give Barclays its backing for the new CoCos ahead of the vote by shareholders on April 25.

The ABI, whose members account for about 15 per cent of the UK stock market, issued an “amber top” alert on the plan, people familiar with the matter said, which flags a contentious issue but stops short of recommending investors reject it.

The ABI said it was concerned that shareholders are not guaranteed the right to buy shares, which Barclays described as only an intention.

PIRC, another advisory group, said investors should abstain from the resolution.