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Barclays Plans To Boost Capital In Bond, Stock Offer

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Barclays PLC (NYSE:BCS) (LON:BARC) is planning to take steps to raise billions of pounds in capital, according to The Wall Street Journal’s Max Colchester, Margot Patrick and David Enrich. Sources told them that the plan will likely be announced on Tuesday along with the bank’s June quarter earnings results.

What Barclays’ plan could look like

According to The WSJ’s sources, Barclays PLC (NYSE:BCS) (LON:BARC) could reveal plans to offer new common shares and also convertible bonds. Both would help it raise at least $10.78 billion in capital, which would plug a hole regulators in the U.K. identified recently. It would also help the bank be able to more easily absorb losses in the future and also get rid of any concerns investors might have about whether the bank has enough capital.

The sources did say that the plans could still change because the bank’s executives are negotiating with the Prudential Regulation Authority. They want to make sure that whatever they do will be enough to satisfy the new capital rules set forth by the agency.

The timing of the issuance of the bonds or common shares isn’t known, and neither is whether the final answer will be shares, bonds or a combination. Convertible bonds would not affect current shares as much as issuing new shares would, although the PRA has needed some convincing that bonds would satisfy at least part of their requirements. Still other possibilities include selling off some of its business units in order to shrink its assets.

Barclays testing the waters

They also said that Barclays PLC (NYSE:BCS) (LON:BARC) has been speaking with investment banks recently to look into whether offering new common shares would help raise its capital ratios.

Executives at the bank haven’t wanted to issue new shares because it would lower the value of the shares which already are outstanding. However, shares of Barclays PLC (NYSE:BCS) (LON:BARC) have more than doubled over the last 12 months, so issuing new shares now could help cushion some of the blow. Also the rising stock price has apparently made executives more interested in the thought of doing it.

However, it still isn’t clear whether Barclays PLC (NYSE:BCS) (LON:BARC) will indeed announce plans to issue new stock when it releases its latest earnings report on Tuesday.

European banks move to protect themselves

The financial health of lenders in Europe has been a concern for investors, particularly as regulators pressure the banks to reduce the amount of risk associated with their balance sheets. Last month the Prudential Regulation Authority demanded that all banks in the U.K. be able to hold equity of 3 percent of their total assets as soon as they could. Barclays PLC (NYSE:BCS) (LON:BARC)’s ratio is at 2.5 percent currently, so it must find a way to raise capital in order to comply with the new rule.

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