Barclays: some equity is more equal than others
If City shareholders really believe in pre-emption rights they will continue to oppose Barclays’ capital issue. While the institutions are now being offered a share, private investors remain excluded.
The bank originally offered £6.5bn of new capital to investors from Qatar and Abu Dhabi with existing shareholders given no chance to participate. Now the institutions will be allowed to buy up to £500m of those shares – but there is still nothing on offer to the loyal small shareholders.
It is a bad message from the big pension funds and insurance companies if they think pre-emption applies only to them.
The fact is that Barclays, in its haste to avoid accepting government money, has botched its capital raising and there is no easy way to rectify its error. Independence from the state has a value but the bank’s price is too high - yet undoing the deal would be even more expensive.
If existing shareholders vote down the issue because of their exclusion they risk forcing Barclays to accept even more onerous terms from the government – if not bringing down the bank.
The bank’s concession is to have persuaded the Gulf investors to offer part of their proposed stake to institutions – though a pretty small part. What price if any the Gulf investors have extracted for that clawback has yet to emerge, but there was a £300m cashback for agreeing to take the shares originally.
To show their contrition, Barclays’ executive directors will forgo their bonuses – though there are only four executives on the board.
And the whole board will stand for re-election next April. But even if the affair is not forgotten by then, no shareholder would dare remove a whole bank board and, as the Emirate investors will still have almost 30 per cent of the bank, directors can rest assured they will be re-elected.
The bank – and existing shareholders – will nevertheless be lumbered with paying 14 per cent until 2019 on the £3bn of Reserve Capital Instruments it is offering. There are also warrants to buy new shares at 198p too – though the furore over the issue means those are still out of the money.
Another £4.3bn of convertible notes – still not on offer to existing shareholders – will pay 9.75 per cent until they convert next summer at 153p a share.
The institutions were right to be miffed at being excluded but they should have stuck up for the small shareholders too – just as Barclays should have included them. They have a common interest in pre-emption – and private investors would welcome a long-term 14 per cent return.
