Barclays may be forced to seek capital

Hurriyet Daily News with wires

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Abu Dhabi’s royal family and two Qatari investors purchased a 32 percent stake in October after London-based Barclays decided against accepting funds from the British government. The agreement stipulates that Barclays would have to offer additional shares at a discount to the Middle East group before accepting any money from the U.K., Bloomberg reported yesterday.

Barclays raised 5.3 billion pounds ($7.4 billion) on Oct. 31, selling securities including convertible notes to Sheikh Mansour Bin Zayed Al Nahyan of Abu Dhabi, Challenger Universal and Qatar Holding. Barclays has dropped since then in London trading on speculation it will need more capital to cover credit writedowns and may be taken over by the British government.

Suffering shares
The stock is down 54 percent this month and 61 percent since Barclays announced plans to sell the convertible notes. They pay interest of 9.75 percent until they are converted to stock at a price of about 153.3 pence a share on June 30.

Qatar Holding and Sheikh Mansour also bought 3 billion pounds of securities known as reserve capital instruments. These require Barclays to pay annual interest of 14 percent and give the investors warrants to buy more than 1.5 billion Barclays shares at about 198 pence apiece. The contracts with the Gulf investors would prevent the U.K. government from taking a majority stake in the bank, the Times and Telegraph in London reported yesterday.

Meanwhile, the head of Britain's financial regulator dismissed suggestions that the lifting of the ban on short selling of financial stocks was behind the collapse in share prices of some of the country's leading banks this week.

Adair Turner, head of the Financial Services Authority, said on BBC radio yesterday that there is no evidence that the removal of the short-selling ban last Friday has played a "significant" role in the slides. But he stresses that the ban would be re-imposed "without warning and immediately" should abusive trading be found.

His comments come a day after group of influential British lawmakers wrote a letter to the FSA expressing concern at the lifting of the ban on short selling, or trading on the expectation that share prices would fall.

The U.K. government has no wish to nationalize the country's banks, since it's convinced that they are "best managed and owned commercially," said Paul Myners, the financial services secretary to the Treasury.

Writing in the Financial Times, Myners said "soundly managed banks and markets'' can support wealth-generation in the economy in a way that "could never be matched by the public secor.''

Myners, formerly the chairman of Marks & Spencer, a clothing retailer, stated that banks "best fulfil their role when they allocate capital on the basis of a sensible assessment of risks and returns.''

Events have shown that banks worldwide took unacceptable risks, partly as a result of "poorly structured remuneration arrangements," he wrote.

It's now apparent that the consequences weren't confined to banks, and affect everyone, he concluded.