Barclays shares plunge as launches huge rights issue

Barclays set out on Tuesday to raise ??5.8 billion by offering shares at a massive discount to shareholders so as to fall into line with demands from regulators.

The issue, worth $8.9 billion or 6.7 billion euros, will be offered at almost half price and is part of a far bigger effort to plug a vast hole of ??12.8 billion in the balance sheet.

Barclays made the announcement as it reported first-half results which showed a quadrupling of net profit, but the scale and terms of the rights issue drove the price of the shares down by as much as 7 percent.

The London-listed bank will also issue ??2 billion of "contingent capital" bonds which are turned into shares or wiped out if it gets into trouble.

The plans are aimed at meeting demands made last month by the Bank of England's Prudential Regulation Authority (PRA), which supervises the banking sector.

Following a review, the watchdog had ordered Barclays in June to increase the amount of equity it holds against total assets, a measure called the leverage ratio.

Barclays said that the moves, and separate measures to shrink parts of its business, should push its leverage ratio to above 3.0 percent, the minimum required by the PRA, by June 2014.

"As a consequence of the PRA's review we have had to modify our capital plans, in order to meet the 3.0-percent leverage ratio target," said Barclays chief executive Antony Jenkins.

"After careful consideration of the options, the board and I have determined that Barclays should respond quickly and decisively to meet this new target. We have developed a bold but balanced plan to do so.

"The plan is a combination of: a rights issue; prudent reduction of our leverage exposure; issuance of additional tier one securities; and the retention of earnings and other forms of capital accretion.

"We believe this represents the right combination to meet the PRA's leverage target. It also enables us to maintain our planned lending growth and broader support of our customers and clients."

The bank will sell the new shares at 185 pence each, which marked a steep 40.1-percent discount to Monday's closing level.

The plans emerged as the scandal-hit bank admitted that it suffered a net loss of ??168 million in the second quarter, or three months to the end of June, compared with a profit of ??746 million a year earlier.

Barclays' performance was rocked by a surprise ??2.0-billion charge to cover compensation for the mis-selling of financial products, including ??1.35 billion for unsuitable payment protection insurance.

The bank was plagued last year by the Libor rate-rigging scandal.

The PRA had ruled in June that five British banks including Barclays must together find an extra ??13.4 billion to meet international rules on amassing sufficient capital cushions.

The regulator's banking sector review came amid international moves for banks to hold more capital against their assets to reduce the impact of future financial crises and avoid more government bailouts.

On a more upbeat note, Barclays added Tuesday that net profits had more than quadrupled in the first half of 2013.

Earnings after taxation surged to ??671 million in the six months to the end of June, compared with ??148 million in the same part of 2012.

However, Barclays added that adjusted pre-tax profits sank by 17 percent to ??3.59 billion from ??4.34 billion a year earlier.

Earnings were hit by the cost of a company-wide restructuring that was launched in the wake of the Libor scandal that tainted Britain's banking sector.

In morning London deals, Barclays' share price dived 7.07 percent to 287.20 pence, as the rights issue was far bigger than expected.

Weekend media reports had suggested that the bank would seek to raise ??4.0 billion.

"Details of the Barclays capital raising emerged this morning and put a predictable dent in the share price as traders reacted to the ??5.8-billion cash call," noted analyst Matt Basi at traders CMC Markets.