Barclays looks beyond Government to bolster balance sheet

by Gill Montia

Story link: Barclays looks beyond Government to bolster balance sheet

Barclays has responded to the Government’s £500 billion rescue package for the UK’s High Street banks by saying it plans to raise capital from the markets.

In return for the support speedily prepared by Ministers earlier this week, the UK’s leading banks have pledged to increase their Tier 1 ratios by a combined £25 billion.

The move is aimed at increasing confidence in the sector and ultimately easing interbank lending.

Banks that turn to the Government’s programme for support will arguably become part-nationalised as funds will be exchanged for preference shares.

This will inevitably mean that restrictions on dividends, executive pay and bonuses will be applied.

The required improvements to banks’ capital positions should be made by the end of 2008 and Barclays is hopeful that its existing investors will support a fundraising in the meantime.

The bank took a different direction to its rivals back in the summer when there was a round of rights issues involving HBOS, RBS and Bradford & Bingley.

At that time, Barclays bolstered its balance sheet by raising capital from foreign investors, notably Qatar Investment Authority and Sumitomo Mitsui Banking Corporation.