Barclays plc is planning to boost its capital by raising money from investors in Abu Dhabi and Qatar. It's a complicated package and it looks expensive. Here's how the Telegraph website describes the deal:
"For starters, Barclays is paying a 14pc coupon for 10 years on some preferred-like shares. It's the highest rate yet for bank capital. True, the after-tax rate of 10pc is cheaper than the UK government's 12pc – but Barclays probably will be shelling out for at least six more years than its peers getting bailed out by the authorities.
Next, there are warrants – handed over at an in-the-money price and with anti-dilution protection. The Middle Eastern investors can subscribe to 1.5bn new ordinary shares at the severely depressed price of 198p each any time over the next five years.
Then come £2.8bn of mandatory convertible notes. Taking the 9.75pc coupon into account, the conversion price is 27pc below the pre-deal share price. There is also a generous thank you from Barclays - £300m of commissions, which get paid to Abu Dhabi and Qatar regardless of whether the deal goes ahead."
The commissions are pretty stunning, but they're really a sort of "drop dead fee", probably inserted as an inducement for the bank's existing shareholders to back the deal. (They get to vote on it later in the year). After all, they'll be throwing the £300 mil away if they don't.
The Government and most politicians are likely to welcome this initiative, but there's at least one exception. Here's Lib Dem Treasury spokesman Vince Cable, quoted on the Guardian website:
"The deal allows Barclays to strengthen its balance sheet without getting help from the taxpayer, but its terms, which are seen as generous to its new investors, drew fierce criticism today from Liberal Democrat deputy leader and Treasury spokesman Vince Cable.
"This is a scandal of mammoth proportions," he said. "Here is a bank which relies on the taxpayer to bail it out if the going gets rough but which has offered Middle Eastern investors a much better deal than the banks are offering to the British taxpayer."
Cable has been impressive throughout the financial crisis, but these comments are plain nuts. The comment that Barclays "relies on the taxpayer to bail it out" is particularly bizarre, given that the precise reason the bank is doing this deal is to avoid relying on the taxpayer.
Cable goes on to offer his explanation as to why Barclays is going down this road:
"We have to ask why Barclays it is willing to offer a better deal to foreign investors than the British taxpayer," Cable said. "The answer is simple: they don't want the British government stopping them from paying massive bonuses to their executives.
"More than the other banks, Barclays operate a high-risk casino operation which makes the bank particularly unstable but which gives very rich pickings to the top executives. The British government must not simply let this pass."
Leaving aside the accusations in the second paragraph of that quote -- which might well be actionable if uttered by anyone other than a politician -- Cable's explanation doesn't really hold up. The public likes (or should I say hates) to imagine bankers going home on bonus day with the boots of their Bentleys stuffed with crisp new 50s. In truth, most bankers get a large chunk of their bonuses paid in the form of stock, and have to wait years to convert it into cash. A deal like this one, which will certainly weigh on the stock price until the warrants and the convertibles are exercised, is the last thing they'd want.
So why are Barclays' management recommending this deal to shareholders? The classically-named chairman, Marcus Agius, says "it's all about self determination". With the press reporting today that the Government is putting pressure on the banks that have been bailed out to boost lending levels, it's not difficult to believe him.
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