Barclays Bank is expected to emerge stronger from the credit turmoil that forced its main rivals in the UK, but also in the US and core Europe to seek government assistance and state participation, according to a leading executive in Cyprus.
The aid measures are seen limiting the competitors’ ability to seize opportunities in contrast to the strongly capitalised, independent and flexible Barclays, said Lee Francis, Country Director Barclays Wealth Intermediaries & Corporates in Cyprus.
In an exclusive interview with the Financial Mirror, Francis said Barclays has been in business for over 300 years and is safe, secure and well-regulated.
“Indeed, over the course of our history we have shown that we are able to weather all kinds of market conditions. Since 1992, Barclays has consistently held an AA credit rating.”
Barclays has a strong and diverse business that offers a wide variety of products and services to personal and business customers across more than 50 countries around the world.
“Due to our heritage, we are seen as a safe haven for many and our first half results demonstrated this, as customer deposits rose by GBP 25 bln,” Francis said.
Barclays Wealth Intermediaries provides financial advice, products and services to intermediaries and corporates seeking offshore/cross border banking and has more than 30 years of dedicated offshore banking experience, currently managing more than 900 intermediary clients.
TIER 1 CAPITAL
Two weeks ago, the UK Government announced a package of measures to ensure the stability of the financial system including participation in the share capita of a number of banks. Barclays decided not to seek capital from the government and instead announced plans to strengthen its capital base by over GBP 10 bln, which was swiftly approved by the regulators.
Francis said Barclays is well capitalised, profitable and has access to the liquidity required to support its business. Taking into account the new higher capital targets which the FSA has set for all UK banks, the board has determined that it will raise in excess of GBP 6.5 bln of Tier 1 Capital. This would result in a pro forma Tier 1 Capital ratio as at June 30 of over 11%.
Given the strength of Barclays’ well diversified business and the existing capital base, the board expects that the additional capital will be raised from investors without calling on the government funding which has been offered to UK banks. Accordingly, a plan has been agreed with and approved by the FSA which envisages:
– the issue of preference shares to raise GBP 3 bln by December 31 as Barclays’ contribution to the commitment made by UK banks to increase Tier 1 capital by GBP 25 bln in aggregate by year-end;
– the issue of new ordinary shares to raise GBP 0.6 bln as announced on September 17 as part of the deal for the acquisition of Lehman Brothers’ North American investment banking and capital markets businesses;
– the issue of new ordinary shares to raise a further GBP 3 bln as soon as practicable after the announcement of the full year 2008 results with the intention that this should be before March 31, 2009. The offer of such shares will be structured so as to give existing shareholders full rights of participation.
The plan also foresees balance sheet management and operational efficiencies that will release at least a further GBP 1.5 bln in equity resources.
As part of the above issuance of shares, Barclays has agreement in principle with an existing shareholder to contribute GBP 1 bln in new capital, to be allocated between the component parts listed above.
NO DIVIDEND
In the light of the new capital ratios agreed with the FSA and in recognition of the need to maximise capital resources in the current economic climate, Barclays’ board has concluded that it would not be appropriate to recommend the payment of a final dividend for 2008. This dividend, amounting to GBP 2 bln, would otherwise have been payable in April 2009. “Our intention is to resume dividend payments in the second half of 2009.”
The effect of this is that more than GBP 6.5 bln is raised through capital issuance and at least a further GBP 3.5 bln through dividend and other actions.
In the event that any of the proposed capital issues do not proceed, Barclays, along with the other UK banks, would be eligible to have access to the capital facilities announced by the government on October 8. The terms of such facilities would be negotiated at that time and may be on terms less favourable than those made available. The UK government has also confirmed that Barclays is eligible to use the extended facilities with the Bank of England and the government guarantee of term unsecured issuance which have been made available to other banks.
