Jeremy Warner's Outlook: Barclays determined to do right thing by shareholders as capital pressures mount

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The Independent Online

Corporate bosses are entering that mode of thinking where, never mind all those ambitious expansionary plans which in happier times they had for the future, for now it is just about getting to the other side of the downturn in one piece. For bankers, that means raising new capital. If it turns out that they don't need it, then the money can always be paid back at a later stage.

On the other hand, no shareholder is going to thank you for running an efficient balance sheet if you are sunk in the meantime by a serious recession. Bankers may have lost all sense of credit risk during the boom, but they know about downturns. It pays to enter them well insulated against the cold.

One bank still resisting this way of thinking is Barclays. Despite the fact that the City now believes it inevitable that new capital will have to be raised, the Barclays board continues to hold the line that it is unnecessary. There will be no rescue rights issues at Barclays, is the message. This is partly about rubbing Royal Bank of Scotland's nose in it. Having expensively outbid Barclays for ABN Amro, RBS has been forced to go cap in hand to shareholders for £12bn to rebuild capital ratios.

By refusing to do anything similar, Barclays is saying that it is a well-run bank which has managed to avoid the worst consequences of the credit crunch, doesn't feel in the least bit capital constrained, and has the correct diversity of interests to weather any coming storms in the wider economy. Misery loves company, so RBS would very much welcome Barclays aboard the distress rights issue bandwagon.

The message yesterday from John Varley, the chief executive, was that whereas nothing is ruled out, he's in a completely different space to RBS. That other banking fashion accessory of the moment, which is to pay dividends in shares so as to preserve capital, is also being dismissed in favour of plain vanilla cash payouts.

Whatever happens, pledges Mr Varley by way of derogatory reference to the deeply discounted rights issues of rivals, he'll act in a way that is least painful to his shareholders. This seems to imply that if he does eventually seek new capital, it will be achieved via a share placement with strategic investors. Whether convincingly or not, he can then pass off his capital raising as something which has wider commercial value and is therefore about much more than simply replenishing capital.

ABI guidelines allow a company to issue up to 5 per cent of its equity for cash without offering pre-emption rights, and to place larger amounts for cash if the shares are being issued in respect of an acquisition – a so-called vendor placing. After 10 per cent, existing shareholders have to be given rights of clawback.

Within these broad parameters, the rules on what can and cannot be done are fiendishly complicated, yet the bottom line is that any placement of shares on a preferential basis above 5 per cent could be controversial. There are ways around it, such as the "cash box" mechanism suggested by Exane BNP Paribas this week, but shareholders take a dim view of any deliberate attempt to circumvent the rules.

Five per cent doesn't get Barclays very far in terms of capital raising. The effect would be to add just £1.5bn to reserves, which seems a large sum of money but doesn't make a material difference to capital ratios. The tier one equity capital ratio at present stands at 5.1 per cent, but is likely to sink lower before it gets better. Barclays regards this as adequate, but banking regulators think it risky and not good for the British economy. This might especially be the case if you take the view put around by banking rivals that Barclays is being economical with the actualité in first-quarter figures by choosing to write off only what it can afford to lose, rather than recognising the harsher reality that others have admitted to.

The very suggestion sends Bob Diamond, head of Barclays Capital, into a fury of indignation. There is no read across between banks, he insists, because the risk profile of mortgage-backed securities portfolios is likely to be completely different. In particular, Barclays claims to hold securities of rather older vintage than some rivals, making these holdings inherently less risky and therefore of greater value when marked to market.

Underwriters to a distress rights issue are in any case likely to demand a more extreme view of impairment charges than auditors to banks that don't intend to go this route. Whatever.

Regulators will in all probability eventually require Barclays to raise more capital whether it likes it or not, but Barclays is planning to finesse it in such a way that it doesn't look like capital raising under duress. The subtext that Barclays wants to get across is that there is a world of a difference between Barclays on the one hand, and RBS and HBOS on the other.

So in come the strategic partners, maybe the same ones as last summer – China Development Bank and Temasek, the Singapore wealth fund – or possibly others. Whatever happens, Mr Varley is determined to do it in a way which protects the rights of his existing shareholders and keeps them sweet. Might he be able to achieve the premium to the market he got last summer? That's a big ask in these markets.

Yet Barclays doesn't behave like a bank under pressure. It's buying in Russia and aggressively expanding in investment banking. If this is denial, it's certainly got chutzpah.