Banking giant Barclays Plc on Monday said it will raise over pound 6.5 billion from investors to shore up its capital base and not call upon the government for emergency funding.
The bank's board has decided to raise in excess of pound 6.5 billion of Tier-I capital after taking into account the new higher capital targets set by regulator Financial Services Authority for all UK banks, Barclays Plc said in a filing to the London Stock Exchange.
"Given the strength of Barclay's well diversified business and the existing capital base, the Board expects that the additional capital will be raised from investors without calling on the government funding, which has been offered to UK banks," the filing stated.
This would result in a pro-forma Tier-1 capital ratio as on June 30, 2008 of over 11 per cent, it added.
Tier-I capital refers to the core capital of a bank, including equity capital and disclosed reserves, and shows its capital adequacy.
In the view of the need to maximise capital resources in the current economic climate, the Board of Barclays has decided not to recommend a final dividend for 2008. This dividend, amounting to 2 billion pound, would otherwise have been payable in April, 2009.
"Our intention is to resume dividend payments in the second half of 2009," Barclays said.
The effect of capital issuance would help in raising over pound 6.5 billion and at least a further pound 3.5 billion through dividend and other actions, it added.
Barclays's fund raising plan, which was approved by the FSA, includes issue of preference shares to raise pound 3 billion by December 31, 2008. The amount would be Barclays's contribution to the commitment made by UK banks to increase Tier-1 capital by pound 25 billion in aggregate by year-end.
The plan includes issue of new ordinary shares to raise pound 0.6 billion ($1 billion), as part of Barclays's announcement concerning the acquisition of Lehman Brothers North American investment banking and capital markets businesses, it said.
The issue of new ordinary shares to raise another pound 3 billion would be as soon as practicable after the announcement of its full year 2008 result.
The offer of such shares would be structured so as to give existing shareholders full rights of participation, the statement added.
Besides, the balance sheet management and operational efficiencies would release at least a further pound 1.5 billion in equity resources.
As part of the above issuance of shares, Barclays has in principle agreement with an existing shareholder to contribute 1 billion pound in new capital.
However, in the event that any of the proposed capital issuances do not proceed, Barclays, along with the other UK banks, would be eligible to have access to the capital facilities announced by the UK government.The UK government has also confirmed that Barclays is eligible to use the extended facilities with the Bank of England and the government guarantee of term unsecured issuance which have been made available to UK banks.