Market Report: Barclays eyes a £5bn share sale to plug hole

Banks have disappointed government and they have disappointed the public, and yesterday Barclays disappointed the City. This time, the crushing disappointment wasn’t due to mis- selling or big bonuses – Barclays yesterday frustrated the Square Mile when it emerged it will pursue a £5bn-plus rights issue to plug the perceived hole in its balance sheet that the Bank of England’s capital requirements have revealed.

The City regarded the extra money as needless and scribblers at Investec exclaimed “How very disappointing!”.

Investec’s banking expert Ian Gordon said if Barclays raised “‘surplus’ equity, on which it will earn little return” it will leave a drag on the return on equity for shareholders. Mr Gordon said he would prefer an “18 month dividend suspension” instead of raising the “additional capital now.” But Barclays looked set to confirm the plans today. In a statement yesterday it said it had “been in discussions” with the Prudential Regulation Authority (PRA) regarding its “financial and capital management plans” and said it will announce the details today at its half-year results.

Despite the dissatisfaction, Investec still rated Barclays a buy with a 345p price target for shares that slumped 11.1p to 309.05p. But they added: “If Barclays has the courage to say no [to the capital requirements] we would see further upside.”

Mike van Dulken, the head of research at Accendo Markets, said: “Barclays shares [are] in the doghouse. News that the UK’s Serious Fraud Office is stepping up its investigation into how the bank managed its 2008 capital bolstering, combined with fears over new leverage ratios … have added to the negative sentiment on the shares... Bailed out peers Royal Bank of Scotland and Lloyds may steal the thunder this reporting season with the latter expected to have returned to profitability and a step closer to re-privatization.”

RBS shares slipped 2.4p to 325.6p and Lloyds was 0.33p better at 68.7p.

The City has been desperate for takeover deals to perk things up and traders were spoilt for choice yesterday as shares in media and drugs groups soared on news of the mega-merger between Publicis and Omnicom to create the world’s biggest advertising agency and US generic drug maker Perrigo’s deal to buy Irish drug company Elan for $8.6bn (£5.6bn).

The deal excitement pushed the FTSE 100 up 5.46 points to 6,560.25.

Pharmaceutical group Shire, which has long been viewed a potential takeover target, rose 55p to 2,382p on speculation it could be bought next.

Last week Shire climbed to an all-time high after releasing better-than-expected second-quarter results. Other pharmaceutical groups also benefited from the deal – AstraZeneca climbed 18p to 3,273p and GlaxoSmithKline, which has been hit by its Chinese bribery scandal, managed an 11p gain to 1,675p.

Over in media, WPP achieved a 7p flurry to 1,182p on news of the deal between Omnicom and Publicis. Investec said it expected “client/talent fall-out” from the merger to help Sir Martin Sorrell’s rival advertising business.

Miners were among the top 10 gainers and troubled Kazakhstan-focused group ENRC, which is the target of a takeover bid by its three founding shareholders and the Kazakhstan government, climbed 4.9p to 219.8p and gold specialist Randgold Resources advanced 176p to 4,839p.

Product-tester Intertek Group lost 86p to 2,977p, despite its reporting 9.5 per cent growth in sales for its half year.

Mid-cap pork producer Cranswick reported a 10 per cent sales jump for the past quarter but it failed to hang on to gains made earlier this month and declined 10p to 1,158p.

Fidessa, the developer of financial trading software, was 70p weaker at 2,000p after it admitted the market for investors and traders has remained difficult and it reported a first-half profit decline.

Milk to cheese maker Dairy Crest sold its depot-based milk delivery business in the North-west to Creamline Dairies for £1.15m as part of its cost cutting and it put on 2.8p to 491.9p.

Private equity group EME Capital has until 5pm today to make a bid or walk away from AIM-listed jeweller to the stars Theo Fennell. The “put up or shut up” deadline has been extended seven times since they first emerged as an interested party last September.

The market was not confident of a deal and it tarnished 1p to 6.25p.