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Barclays' Boost, Finally
by Megan Barnett Jun 25 2008
A $9 billion injection will help, but skeptics wonder if it will be enough.
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Barclays PLC ADR (BCS)


Executives of Barclays would like to assure everyone that everything is just fine at Britain's fourth-largest bank. The trouble is, investors these days need a bit more evidence than a promise.

Barclays announced this morning that it will raise $8.9 billion from a group of international investors. It will use the funds to shore up its reserves and invest in expanding its business.

The investors include Qatar Investment Authority, Singapore's Temasek Holdings, China Development Bank, Tokyo's Sumitomo Bank, and Challenger, which is the investment firm for Qatar's royal family. Existing Barclays shareholders are also invited to participate in the stock offering.

As Jesse Eisinger noted in the current issue of Condé Nast Portfolio, big cash calls such as this one shouldn't necessarily please existing shareholders. After all, issuing more stock as Barclays is doing will dilute the value of existing shares. Analysts expect this $9 billion offering will diminish their earnings-per-share forecasts by as much as 24 percent.

Moreover, as Paul Murphy notes on the Financial Times' Alphaville blog, plenty of questions went unanswered on the conference call with Barclays executives this morning.

For starters, Barclays has not been as forthcoming as its U.K. or U.S. counterparts with details about how it's valuing its balance-sheet assets. The bank has had far fewer write-downs than other major banks, and skeptics wonder if there will be more bad news to come.

If Barclays used the same valuation marks that its competitor Royal Bank of Scotland uses, Murphy notes, some analysts believe the bank would need to raise nearly twice what it announced this morning.

Moreover, it continues to use its year-end 2007 ratios to defend its capital strength, even though it has admitted that conditions deteriorated this year.

Over at BreakingViews, Jeffrey Goldfarb notes that Barclays' "bravado" seems misplaced: "[I]t is seeking higher ground by claiming there is no reason to show its hand to rivals—or to investors. Barclays' top brass thinks they should be showing faith. They haven't, as shares have fallen 40 percent so far this year."

Despite the skepticism, however, Barclays' shareholders did get a bit of relief with today's news, as its stock rose more than 6 percent. Still, it's a long way back up from a 40 percent fall.