Barclays PLC (NYSE:BCS) (LON:BARC) announced today its plans to raise $12 billion through rights issue and contingent capital, to plug its capital short fall.
Britain’s third biggest bank and the sixth largest in Europe plans to raise $8.9 billion through a rights issue of stock and the balance through contingent capital, which is a financial instrument that converts to equity if the bank’s capital falls below a certain threshold level.
Barclays PLC (NYSE:BCS) (LON:BARC) also revealed its plans to reduce assets on its balance sheet by up to £80 billion to enhance its leverage ratio to 3 percent by 2014.
PRA’s mandate
Earlier it was anticipated that Barclays PLC (NYSE:BCS) (LON:BARC) would be launching its £4 billion ($6.1 billion) rights issue aimed to bridge a possible £7 billion capital hole.
Prudential Regulation Authority, an arm of Bank of England said on Tuesday Barclays PLC (NYSE:BCS) (LON:BARC) needed an extra 12.8 billion pounds to strengthen its capital reserves against potential market shocks. The higher amount is primarily due to tougher European rules on the way banks measure risks.
PRA gave Barclays one year to fill the gap, necessitating the bank to seek shareholders support for its rights issue.
Rights issue in September
Chief executive of Barclays PLC (NYSE:BCS) (LON:BARC), Antony Jenkins indicated Tuesday the bank was increasing its provisions for mis-selling financial products by £2 billion. Jenkins conceded that he has been forced to modify his earlier plan after Bank of England felt Barclays’ finances were in a worse situation than earlier anticipated.
The proposed rights issue would be launched in September. Barclays PLC (NYSE:BCS) (LON:BARC)’ shareholders will be offered the right to buy one share for every four shares held at 185 pence per share, a discount of 40 percent to Monday’s closing price.
Barclays’ second quarter results
Revealing its second quarter results, Barclays PLC (NYSE:BCS) (LON:BARC) disclosed a net loss of £168 million as against £746 million posted during second quarter of last year. The net loss was accentuated due to £2 billion charge to cover expected compensation to customers who bought faulty products. The £2 billion charge consists of £1.35 billion to reimburse customers for unsuitable payment protection insurance on loans and £650 million to repay small-business customers who were sold interest-rate hedges that they didn’t need or understand.
