Barclays leaves question mark over cash call

Published on Thursday 15 May 2008 21:38

THE prospect of another major banking rights issue loomed last night as Barclays refused to rule out making a cash call demand of its investors.

Barclays' refusal to rule out the move came as Britain's third-biggest bank took an extra 1 billion charge related to the credit crunch.

Speaking as the bank unveiled a trading update, finance director Chris Lucas said: "We are clear that all options remain available … we are not going to rule in or rule out anything."

A move to bolster Barclays' balance sheet would follow three cash calls on investors in the sector in a month.

Bradford & Bingley this week followed Royal Bank of Scotland and HBOS, owner of Bank of Scotland and Halifax, in opting for a rights issue.

Barclays confirmed yesterday that first-quarter profits in 2008 had fallen by an unspecified amount compared with the same period last year.

Barclays Capital's credit market exposures resulted in an overall hit of 1.7bn, with 700 million recovered through gains on the valuation of notes issued by the division. The net losses included 598m of writedowns on specific loans. In February, Barclays disclosed a 1.6bn hit from the credit crunch.

Lucas told analysts yesterday that he remained comfortable with an average forecast for 2008 profits of 6.4bn – which would be down 10 per cent from 2007 in slowing financial markets.

The bank said it expected its core Tier 1 capital ratio, a measure of its financial strength underpinning loans, to be slightly lower at the end of June than the 5.1 per cent it reported at the end of 2007. It intends to lift this to 5.25 per cent "in time".

Lucas said the bank did not intend to follow the lead of several rivals by paying its dividend in shares to save cash. "Our view on scrip dividends is they are not really a dividend, and therefore are not attractive to us," he said.

Other options to bolster the capital base include retaining earnings and slower lending.

Alex Potter, a banking analyst at Collins Stewart, said the low capital position was sustainable but could drag on the shares.

In an analysis of the bank's dilemma, he said: "Do you bite the bullet now, recapitalise and, though you may have day-one dilution, give yourself a better footing to generate growth?

"Or do you leave it as an overhang over the business?"

Potter added: "Hats off to them for being in a position where they are not forced into this."

Barclays flagged last month its Q1 profits would fall as earnings at BarCap and its Barclays Global Investors fund management unit had been hit by financial market turbulence linked to the credit crunch since last August.

The bank, through its Woolwich brand, acquired more than 20 per cent of net UK mortgage lending in the first quarter as it benefited from rivals retreating from a slowing housing market. Its traditional market share is around 6 per cent.

Barclays' shares closed down 8.5p at 418.75p.