Today, Barclays announced that it was raising £5.8 billion ($8.9 billion) in new money by issuing common stock. That equity will help fill a £12.8 billion capital hole created by new regulations that force UK banks to hold more equity against their total assets. It will also issue some £2 billion in contingent capital, which would turn into shares if its stock price fall below a certain level.
Shares of Barclays, which will be diluted by the new issue, promptly fell more than 8% in London trading before recovering slightly. That’s despite solid earnings, which showed that the bank might be moving along with a broad restructuring. Earnings after taxes rose to £671 million from £148 million a year ago.
It’s hardly unexpected. Beset by endless scandals, investors have seen the capital raising as proof that Barclays hasn’t been as healthy as it has claimed to be in recent years. The bank refused a bailout from the UK government in 2008, but any image boost from that has by now disappeared.
“Having averted government intervention, the bank’s ability to retain free rein over its business has long been an attraction,” Marc Kimsey, a senior trader at Accendo Markets, wrote to clients after the announcement. “However, left to its own devices the company has bitterly disappointed with today’s update. Provisions to cover the company’s failings are being endlessly extended and today’s capital raising plan is rightly met with anger by shareholders who hoped the bank was ‘out-of-the-woods’.”
But the fact that Barclays is raising capital speaks to a broader trend. New banking regulation carries with it the notion that banks shouldn’t be as profitable as they are, that their past successes and failures have been inflated by their propensity for risk-taking. Barclays is a reflection of the new rules, which seek to limit both how far banks can fall, and how high they can go.