Buy-back blow for Barclays investors

SMALL shareholders in Barclays Bank who were hoping for a modest windfall by way of a special dividend this week - or the chance to sell some of their holdings back to the bank without incurring broker's charges - will have been disappointed by Barclays' decision to reduce its capital by buying in 25 million shares through the market instead of giving all shareholders a chance to benefit.

The repurchase reduces the number of shares in issue by just 1.5 per cent, at a cost to the bank of pounds 180m. If the buy-back had applied to all shareholders equally, it would have been worth about pounds 50 on a parcel of 500 shares, and would have involved a substantial amount of paperwork, cancelling shares for all shareholders. Barclays says it would also have charged normal broker's charges on the deal, which would have made it an unattractive proposition for many.

It also claims that the tax implications of a buy-back are not clear, and the institutions that did sell their shares back on Wednesday will have to negotiate their own tax position with the Inland Revenue.

If the cash had been paid out to shareholders as a special dividend, it would have been worth a little over 8p a share after tax, compared with the 50p a share some market analysts had been expecting. That is pretty small beer. But shareholders would at least have felt they were getting back some of the capital they have subscribed over the years to successive rights issues that the bank has made to boost its capital when business was expanding.

As it is, shareholders will have to hope that in spite of the pounds 180m reduction in the bank's capital resources and - therefore - in its earning power, future dividends will be marginally increased because there will be 1.5 per cent fewer shareholders. The shares fell 8p after the announcement, although that may have been the result of profit-taking after the results on Tuesday.