Institutions inundate Barclays with offer of shares for buy-back

NatWest main beneficiary as investors switch their allegiance, reports John Eisenhammer

Institutional investors overwhelmed Barclays yesterday with offers for its share buy-back, but in the event the bank purchased just 25 million of its own shares at 719p.

Market sources said Barclays was offered about 8.7 per cent of its own share capital by institutions when it first announced the repurchase programme early yesterday morning, but actually bought back only 1.5 per cent of its share capital.

Barclays' share price closed down 23p at 703p. The bank had announced at its interim results on Tuesday its intention to pull back the rapid capital build-up by buying back some shares. The purchase will reduce Barclays' Tier One capital ratio, a key indicator of banks' capital adequacy - by 0.2 per cent from its level of 7.8 per cent.

"There are quite likely to be more purchases in the future, as part of a staged capital management process to stop the equity base from rising too much while the bank is generating strong revenues," a spokeswoman said.

NatWest Group appeared to be the main beneficiary as investors switched the proceeds from their Barclays sell-off into the rival bank's stock.

NatWest shares closed up 19p yesterday at 596p.

The high level of institutional demand for the limited Barclays' offering was driven in large part by tax considerations.

Funds that enjoy tax-exempt status, such as pension funds, were able to claim tax credits on this sort of operation, which is treated as a distribution similar to a dividend payment.

Pension funds were able to take a tax credit equivalent to 20 per cent of the purchase price. Although tendered at 719p, the real value of these shares to the funds was nearer 890p, analysts said.

The demand was also fuelled by an element of profit-taking. Terry Smith, of Collins Stewart stockbrokers, said: "In the past there were four reasons driving Barclays shares: shrinking the business; delivering surplus capital; cost-cutting and a cyclical recovery in bad debts. These have now largely been delivered, so it is probably not a bad time to move on."

At the time of the buy-back at 719p, Barclays shares stood at 726p. Barclays sold the shares via its own investment banking arm, BZW, and Cazenove & Co.

To compound the effect of the small share buy-back, there are two other events in the pipeline which will reduce the pressure strong earnings are placing on Barclays' capital ratio.

Completion of the purchase of Wells Fargo Nikko, the US fund manager, should take off 0.2 per cent, while the introduction of the new European Union capital adequacy rules in January 1996 should reduce it by a further 0.5 per cent.