A capital idea!
Barclays is considering plans to bolster capital by selling contingent convertible bonds, according to two people with knowledge of the talks.
Bloomberg news reports that the bank, under pressure by the the country’s Prudential Regulation Authority, favors issuing CoCos instead of new stock, said the people, who asked not to be identified because the bank is still in talks and no decision has been reached.
Barclays received shareholder approval at its annual meeting on April 25 to sell CoCos, which become shares if its core Tier 1 equity ratio drops below a set level.
Barclays, which holds the least capital as a proportion of its assets of Britain’s four biggest banks, must either raise $11bn in equity or cut $369bn of assets to meet a 3% leverage ratio set by the Bank of England's PRA if it’s forced to comply this year, analysts estimate. The bank, which is eliminating 3,700 jobs to cut costs, will report second-quarter results on July 30.
'CoCos would be attractive to Barclays as they’re cheaper than raising equity,' said Gary Greenwood, an analyst at Shore Capital in Liverpool, England, who recommends buying the stock. Still, that could mean 'there’d be little future motivation for equity holders to put money into a struggling bank, waiting instead for CoCos to trigger.'
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image: © Dick Johnson