Barclays confirms rights issue
Barclays has confirmed that it is looking at carrying out a rights issue.
The bank is believed to be planning to raise an additional £4 billion in order to bolster its book and help mitigate the ongoing impact of the credit crunch on funding. In a statement made at 7am this morning, Barclays said a rights issue is “currently under active consideration” by its board.
It also used the opportunity to release a mini-trading statement for May, that claimed its profit before tax during the month was well ahead of the “monthly run rate” for 2007. Barclays also reported that its global banking business was delivering “strong growth in profits” while investment banking and management profits were "in line".
The announcement, which was prompted by speculation in the weekend press, follows Royal Bank of Scotland’s rights issue. HBOS and Bradford & Bingley also have issues pending, making Barclays the last big British bank to turn to shareholders for more money.
Shares in Barclays rose by 8% to around 345p in the first few hours of trading following the announcement.
However, new shares will be issued at the price they closed at on Friday 13 June - 318p. This values the bank at £20.9 billion.
At this stage, a Barclays’ rights issue is not a definite and is only being considered by the bank. Graham Spooner, an investment adviser at The Share Centre, believes that there is a 50/50 chance that the board will decide to go down this route, with a decision likely within the next week or so.
He adds: “At this stage there is nothing private investors can do, but sit and wait. Our advice has been to hold on Barclays, but for those looking to make a contrarian play over the long-term then this stock would be top of our list.”
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.