Barclays PLC Announces £5.8bn Rights Issue

The shares of Barclays (LSE: BARC) (NYSE: BCS.US) fell 16p, or 5%, to 293p during early trade this morning after the bank announced a £5.8bn right issue.

The FTSE 100 member said it would issue one extra share for every four existing shares at 185p, a discount of some 40% to yesterday’s 309p closing price.

Barclays confirmed the rights issue had been prompted by a review of the banking sector undertaken by the Prudential Regulation Authority earlier in the year.

The bank admitted that a leverage ratio determined by the PRA stood at 2.2% at the end of June. The PRA requires the leverage ratio to be 3% by the end of June next year, which Barclays suggested indicated a £12.8bn capital shortfall.

When the PRA issued its review of the banking sector last month, Barclays then reckoned it would meet the regulator’s requirements without the issuance of new shares.

Anthony Jenkins, the chief executive of Barclays, said today:

As a consequence of the PRA’s review we have had to modify our capital plans, in order to meet the 3% leverage ratio target by June 2014.

The Board and I are aware of the implications of a rights issue for shareholders. We hope to balance this with reduced uncertainty in the outlook for Barclays and with enhancement of our dividend payout from 2014.

Mr Jenkins confirmed the bank’s dividend ratio target of 30% for 2015 had been lifted to between 40% and 50% and brought forward to 2014.

Half-year results accompanying the rights issue announcement showed underlying earnings diving 28% to 16p per share and net tangible assets of 336p per share.

Those figures suggest the shares currently trade on a P/E of 9 and price to book of 0.87.

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> Maynard does not own any share mentioned in this article.