Barclays PLC Could Be Forced To Ask Shareholders For More Cash

Barclays PLC (LON: BARC)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Barclays (LSE: BARC) (NYSE: BCS.US) is the bank everyone loves to hate. The bank has been the subject of criticism for around a year now, after management was forced to ask shareholders for additional cash last year, in order to meet leverage targets. 

Unfortunately, it would appear as if things are only going to get worse for Barclays, as customers head for the exit and regulators clamp down.

Misbehaving Barclays

Barclays has made plenty of headlines this year, but almost none of them have been good. Indeed, the bank has been hit with multiple fines — for failing to properly segregate client assets, failure to manage conflicts of interest and manipulation of the gold price. 

In addition, the bank is facing a lawsuit in the U.S. concerning its dark pool trading system. Some analysts have suggested that this lawsuit could cost the bank more than £300m. And then there are the accusations that Barclays, along with peer, Deutsche Bank helped hedge funds and other wealthy individuals avoid billions in US government taxes. 

All these fines really add up and the financial penalties are likely to hurt Barclays. What’s more, any fines levied on Barclays will be paid out of the company’s capital reserves, which is likely to put the bank’s capital position under pressure.

Testing times

These fines come at a bad time for Barclays. The bank is currently being stress tested by regulators reporting to the European Central Bank and Bank of England.

These tests will establish whether or not Barclays has enough capital to withstand another financial crisis. It’s not just Barclays that is being tested, the bank’s peers are also being studied.

Barclays has a poor record when it comes to meeting capital targets set out by regulators. The bank was forced to undertake a rights issue last year, in order to plug a £12.8bn balance sheet hole. Even after the rights issue, asset sales and the creation of a ‘bad bank’ earlier this year, management is still seeking “further leverage reduction opportunities” to meet capital targets.

So, there is now a very real threat that Barclays could fail these stress tests, which would be terrible news for Barclays’ management and shareholders.

Unfortunately, if the bank were to fail the tests it would be forced to raise additional capital very quickly, implying that yet another rights issue could be on the cards. That being said, this is only speculation and it may turn out that the bank has done all that it needs to in order to appease regulators. 

What to do?

What should you do if Barclays is forced to ask for more cash? Well, that decision is up to you and I strongly recommend that you conduct your own analysis before you make any trading decision.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »