The Bank of England’s Prudential Regulation Authority (PRA) said Barclays needed an extra £12.8bn to strengthen its capital reserves against potential market shocks, more than an estimate of about £7bn a month ago, due mainly to tougher European rules on the way banks measure risks.
It gave the bank a year to fill the gap, requiring it to speed up a plan to rebuild capital and turn to shareholders.
Barclays, Britain’s third biggest bank and the sixth largest in Europe, announced the fund-raising alongside another £2bn charge for mis-selling products and said it was also pushing back a key profitability target.
Banks across Europe are battling to meet tougher regulations aimed at preventing a repeat of the financial crisis and many are struggling to move on from past misdeeds.
Barclays also continues to be haunted by a fund-raising with Qatari investors in 2008, which is being investigated by British and US authorities.
The bank said the Financial Conduct Authority made preliminary findings against it in June, relating to some of the deal’s commercial agreements, and that it responded last week by contesting the findings.
Antony Jenkins, who replaced Bob Diamond as chief executive last year, said he was reacting “quickly and decisively” to the PRA’s demands and the regulator was happy with his plan, which also includes selling £2bn of bonds that convert into equity or are wiped out if the bank hits trouble, and shrinking loans a further £65bn to £80bn.
“I think they’ve done the right thing. Anything else would have been a fudge, they needed to get on and raise equity,” said Mike Trippitt, an analyst at Numis Securities.
The rights issue, the biggest by a British bank since 2009, will offer shareholders one new share at 185 pence – 40 per cent below Monday’s closing price – for every four currently owned.
It will raise the equivalent of 15 per cent of Barclays’ market value and allow existing shareholders to buy discounted shares first, giving them a chance of maintaining their stakes and avoiding the criticism of the 2008 fund-raising when the arrival of new investors reduced the holdings of existing ones.
Rights issues cut earnings per share, and during trading shares were down 7.3 per cent at 286.7 pence, the weakest performance in the European bank index.
Regulators in Britain, Switzerland, the United States and elsewhere have been increasing scrutiny of leverage ratios, which do not rely on banks’ own risk assessments but express a bank’s capital as a proportion of its overall assets.
Meanwhile, Barclays set aside another £1.35bn to compensate customers mis-sold payment protection insurance (PPI), taking its total provision for that to £4bn.
UK banks have now put aside more than £15bn to cover PPI compensation, and Barclays’ latest move signals rivals may have to bump up provisions too.
Barclays also set aside £650m more for mis-selling complex interest rate hedging products to small firms.
The blue eagle bank reported a pre-tax profit of £1.7bn for the six months ending June, almost double its £871m profit a year ago.
It was cautious on the outlook and operating environment and said it would speed up cost cutting. Mr Jenkins’ restructuring plan absorbed £640m of costs in the first half of the year.
Barclays employs about 3,000 people in Yorkshire in branches and back office operations.