July 30, 2013, 3:50 am

Barclays Plans to Raise Up to $12 Billion in New Capital

Kirsty Wigglesworth/Associated PressA branch of Barclays in London.

Updated, 5:57 a.m. | LONDON – The British bank Barclays announced on Tuesday that it would raise up to £7.8 billion, or $12 billion, in new capital as it reported a second-quarter loss of £168 million.
Beset by scandals that have forced it to pay huge settlements and set aside billions of pounds for legal costs, Barclays has come under pressure from British authorities to improve its capital position after local regulators said its so-called leverage ratio, a measure of how much borrowed money a bank uses, was too low.
Legal costs continued to weigh on the bank’s results, leading to the second-quarter loss. In the second quarter of 2012, the bank posted a £746 million profit. Barclays’ second-quarter revenue fell less than 1 percent, to £7.3 billion.

As part of its efforts to raise new capital, Barclays said it would raise £5.8 billion through a rights issue of stock.
The offering, to be started in September, will give existing investors the opportunity to buy one new share for every four shares they currently own at a 40.1 percent discount to the bank’s closing share price on Monday, according to a company statement. If shareholders do not subscribe to the offering, their current stakes in Barclays will be diluted following the rights issuance.
“The £5.8 billion equity increase is much larger than expectations,” Citigroup analysts said in a note to investors on Tuesday.
Barclays also plans to issue up to £2 billion of so-called contingent capital, financial instruments that convert to equity if a bank’s capital falls below a certain threshold. It also said it would reduce assets on its balance sheet by up to £80 billion to improve its leverage ratio to 3 percent by June, 2014.
“The board and I are aware of the implications of a rights issue for shareholders,” the bank’s chief executive, Antony P. Jenkins, said in a statement. “We hope to balance this with reduced uncertainty in the outlook for Barclays and with enhancement of our dividend payout from 2014.”
Shares in Barclays fell almost 6 percent in morning trading in London on Tuesday.
Barclays said the capital raising and other efforts to improve its balance sheet would help to close a £12.8 billion gap that the Prudential Regulatory Authority, a British regulator, said had reduced the bank’s current leverage ratio to 2.2 percent.
“We have considered all elements of the plan, including new capital issuance, and, based on Barclays’ projections, conclude that it is a credible plan to meet a leverage ratio of 3 percent,” the regulatory authority said in a statement on Tuesday.
Since taking over as chief executive last August, Mr. Jenkins has been trying to remold the bank after a series of scandals.
Barclays has announced plans to shift its focus toward a smaller number of activities in its investment banking operations, as well as reduce its exposure to unprofitable business units in continental Europe.
Despite these efforts, legal problems continue to weigh on Barclays. The bank set aside an additional £2 billion in the second quarter related to what regulators have determined to be inappropriate sales of insurance and complex financial hedging products to some of its clients.
The legal costs include a £1.35 billion charge related to inappropriate sales of insurance products to consumers, who were either unaware they had been sold the products or have faced difficulties in making claims on the policies.
Barclays has set aside almost £3 billion since the beginning of 2012 to cover legal costs related to the sale of products ruled out of bounds by regulators.
The bank also said on Tuesday that it had made an additional £650 million provision related to inappropriate sales of financial hedging products to small and midsize business customers.
During the second quarter, Barclays’ investment bank reported a meager increase in pretax profit, to just over £1 billion, as trading activity was weighed down by volatility in global financial markets.
The corporate banking division, however, doubled its pretax income, to £219 million, while the credit card division saw its income rise 2 percent, to £412 million.
“It is early days, and there is a long way to go, but I’m pleased with our progress,” Mr. Jenkins said in a statement.
Barclays, Credit Suisse, Deutsche Bank, Bank of America Merrill Lynch and Citigroup are coordinating the planned £5.8 billion capital offering by Barclays.