Barclays PLC Could Be Forced To Ask Shareholders For More Cash

Barclays PLC (LON: BARC)

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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 considered so you should 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.

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