Barclays outlines £4.5bn shares plan

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The Independent Online

Barclays today outlined plans for a £4.5 billion cash injection from wealthy overseas investors as part of a move to boost its balance sheet.

The banking giant said a raft of so-called sovereign wealth funds and foreign groups had agreed to pump money into the bank, including the Qatar Investment Authority and Japanese banking giant Sumitomo Mitsui Banking Corporation in return for discounted shares.

Barclays added that existing shareholders will also be offered the chance to buy shares under the scheme.

Challenger, a group backed by the Qatar royal family - His Excellency Sheikh Hamad Bin Jassim Bin Jabr Al-Thani and his family - have also pledged cash to Barclays, according to the group.

The group said all existing investors will be able to take part in a "claw back" of up to £4 billion worth of shares, although the full amount has effectively been underwritten by the QIA, Challenger and existing Barclays institutional shareholders China Development Bank and Singaporean government-backed fund Temasek.

Sumitomo, which is Japan's third largest bank, has agreed to invest around £500 million by buying shares at a 4.7% discount to last night's closing price, which is not open to an investor claw back.

John Varley, group chief executive of Barclays, said: "Through our capital raising today we strengthen our capital base and give ourselves additional resources to pursue our strategy of growth through earnings diversification.

"We position ourselves to capture opportunities for new business at attractive margins in our retail and commercial banking businesses and in investment banking and investment management. Our ability to capture the opportunities is reinforced by the new and strengthened relationships we have announced today."

Shares in Barclays rose 5% in early trade today as the market cheered confirmation of the widely-speculated cash raising scheme.

Today's announcement follows reports suggesting that Barclays is under pressure from regulators and investors to boost capital reserves, with the group understood to have one of the lowest core "tier one" equity ratios - a key measure of bank balance-sheet strength - in Europe.

Bank finances have been battered by the credit crunch and collapse of the sub-prime mortgage market in the US, which have led to hefty write-downs and losses.

Barclays has so far taken a £2.64 billion hit in write-downs after revealing a further £1 billion hit in May.

The bank said it was putting half of the money raised towards boosting its capital base, but added that half would also be put into new business opportunities.

It is planning expansion into emerging markets such as Russia and Pakistan, where it has recently gained a banking licence, while also stepping-up business in the US and Asia.

The group also unveiled today that it was striking a strategic partnership deal with Sumitomo, which will give Barclays Capital, the group's investment arm, and Barclays Wealth better access to retail clients in Japan.

Barclays is placing 1.58 billion new shares under the scheme, offering Sumitomo stock at discounted 296p, while the "open offer" sees shares placed at 282p - a 9.3% discount on yesterday's closing price.

The group said that the Qatari investors, the QIA and Challenger, have committed up to £1.8 billion and £533 million respectively.

China Development Bank has agreed to put in up to £136 million investment, with a £200 million boost from Temasek.

Barclays, which is a top five bank in the UK, also said a number of institutional shareholders had committed to up to £1.3 billion.

The bank's confirmation last week that it was looking at this type of fundraising was warmly received, given that it avoids a heavily discounted full-blown rights issue, but still offers existing shareholders the chance to participate.

Fellow banks Halifax Bank of Scotland and Bradford & Bingley have seen their planned rights issues come under pressure.

Mr Varley said today the bank would welcome its investor base taking part in the shares offering.

"The overwhelming majority of this offer is available for subscription on the same terms as it is for our existing shareholders," he said.

"If they choose to come in, we would welcome that and if they choose not to, then we have our anchor investors."

Details of the share placing are set to be sent out in a prospectus later today, with shareholders given until July 17 to register their interest.