Middle Eastern investors will pump up to 7.3 billion pounds ($11.8 billion) into Barclays PLC, allowing the bank to strengthen its balance sheet without resorting to a bailout by the British government. The capital increase announced Friday underscores Barclays' determination to retain its commercial independence, coming just weeks after its peers agreed to stringent trading and management conditions to borrow taxpayer funds. A trio of Middle Eastern investors - the Qatar Investment Authority, the Challenger investment vehicle led by the Qatari royal family and Sheik Mansour Bin Zayed Al Nahyan of the Abu Dhabi royal family - could end up owning almost a third of the bank as a result of the deal. “There has been quite a significant shift in the availability of capital and economic power in the world over the past five years and we are ensuring that we are well aligned with those changes,” Chief Executive John Varley told reporters on a conference call. The stock market responded positively to the news, with Barclays' shares jumping just over 10 percent to 226 pence ($3.66), leading the overall banking sector higher, in morning trade. Barclays, Britain's third largest bank, needed to raise funds to meet new capital reserve requirements set out by the British government for banks as part of its 50 billion pound bailout ($80 billion) package earlier this month. The Royal Bank of Scotland Group PLC, Lloyds TSB Group PLC and HBOS PLC all received direct funding in the bailout, ceding major stakes to the government and halting cash bonuses for board members this year in return for the rescue. Barclays and HSBC Bank PLC decided not to seek a government handout, with Barclays flagging up the deal announced Friday, while HSBC Bank received a 750 million pound injection from HSBC Holdings PLC, its international parent company. Varley said the deal with the Middle Eastern investors, which must be approved by shareholders, was a “forward-looking and progressive approach to managing the share register” that made Barclays one of the strongest banks in the world in capital terms. “We have what we need,” he said, when asked if the bank would need to raise further funds in the future. In a trading update alongside the announcement of the capital raising, Barclays said third quarter pretax profits were “slightly ahead” of the previous year. The bank, which bought the US investment banking arm of collapsed Lehman Brothers last month, recorded credit market write-downs of 1.2 billion pounds ($1.9 billion) but the charge was mostly offset by 1.1 billion pounds ($1.8 billion) in gains on the fair valuation of issued notes. Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said Barclays “continues to underline management's strength in outflanking its rivals,” adding that the recent cherry picking of Lehman assets “so far appears to have been a shrewd move.” The new capital raising will comprise 3 billion pounds ($4.8 billion) of reserve capital instruments, with an associated issue of warrants, and an issue of up to 4.3 billion pounds ($7 billion) of mandatorily convertible notes. Varley said the funding injection would lift the bank's Tier One capital ratio to 11.3 percent, from 9 percent, as at June 30, 2008. The pro-forma equity ratio would rise to 7.6 percent from 6 percent. Varley added that the deal fits with Barclays' strategy of seeking investments from institutions with which it can potentially do business in the long term. In July, it raised 4.5 billion pounds from the Qatar Investment Authority and Japan's Sumitomo Mitsui Banking Corp. It has also received funds from the China Development Bank and Temasek Holdings, based in Singapore. Challenger, the company representing Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, the chairman of Qatar Holding, is also already an investor. Bowman sounded a word of caution for the banking sector as a whole, noting that the “road ahead still looks long and steep.” “A relatively deep global recession could require further capital raising, with banks on this occasion going into a downturn in relatively poor shape,” he added.
