Barclays fails to quell shareholder rebellion

• 'Red top' alert from ABI shows serious concerns

Barclays' decision to put its entire board up for re-election at its next annual meeting and not pay bonuses to any of its executive directors this year has failed to quell a shareholder rebellion over the bank's recourse to the Middle East in a £7bn emergency fundraising.

The bank issued a statement this morning confirming that the board will offer themselves for re-election at its annual meeting in April next year. The offer amounts to a challenge to dissident shareholders to either offer their backing and quit complaining or to sack the board.

In its statement, Barclays said it had held a number of meetings with the bank's largest shareholders - that the discussions had been "constructive" and that it had "listened carefully to shareholders' views".

The bank also pledged to allow existing investors to participate further in the fundraising exercise, setting aside £500m for a placing. This is the bank's attempt to address the issue of preemption rights - where they would expect to be offered new shares before any new investor.

But the attempt to ease the growing pressure on John Varley, the Barclays chief executive, and his boardroom colleagues, ahead of Monday's extraordinary shareholder meeting was not immediately successful.

The Association of British Insurers, which hosted a crucial meeting with Barclays chairman Marcus Agius and senior independent director Sir Richard Broadbent last Friday, issued a "red top" alert on the bank to indicate issues of serious concern to investors. Until today, it had been on a less urgent amber alert.

Peter Montagnon, the ABI's director of investment affairs, said: "We have been grateful for the opportunity to discuss the issues with Barclays and recognise the changes they have made to their proposal as well as the commitment of all the board to stand for re-election and of the executive directors to forgo bonuses this year.

"However, these changes cannot offset the concern of shareholders at the serious breach of the pre-emption principle, especially on an issue with a large discount. Other concerns include the preferential terms available to some investors, and the overall cost of the issue to existing shareholders. After careful consideration we therefore felt we had no choice but to proceed with a red top.

"For the sake of clarity, a red top does not constitute advice to vote against the proposals, but rather the presence of an issue of grave concern. Shareholders will have to weigh up all relevant factors, including the consequences of rejection for Barclays and the wider banking system. The board should not therefore assume that votes in favour of the proposal constitute support for the way it has approached the issue. The red top establishes a firm basis of principle for further dialogue with Barclays and other companies in future."

Pirc, the body that advises pension funds and other major investors, yesterday urged shareholders to oppose the controversial capital raising at next week's extraordinary shareholder meeting. It wants shareholders to send directors a "clear unequivocal message" that the new investors from the Middle East are not a good solution to the need to raise funds.

The deal is already facing criticism from RREV, which also advises pension funds, and corporate governance advisory group RiskMetrics Group.

To avoid the government's £37bn bank bail-out, Barclays has devised a complex structure to raise over £5bn from investors in Abu Dhabi and Qatar - as part of a £7bn fundraising- that also involves issuing warrants and other financial instruments that are not being offered to existing shareholders. Major institutional investors are alarmed that they are being diluted as a result and their influence over the bank reduced.

Pirc acknowledged that voting down the Barclays plan would force the bank to seek other ways to raise capital to bolster its balance sheet. However, it believes the bank should have considered this possibility when it decided on this form of fundraising.

Alan MacDougall, managing director of Pirc, admitted he did not expect the deal to be voted down by shareholders. "However, we believe this case should provoke some reflection on whether some of the UK's largest investors are really acting as effective owners," said MacDougall.

Barclays has insisted that by raising cash from the Qatar Investment Authority and Sheikh Mansour bin Zayed al-Nahyan it can avoid the restrictions being imposed by the government on Lloyds TSB, Royal Bank of Scotland and HBOS which are taking the bail-out funds. But the restrictions, which initially banned dividends for five years and made demands on lending to small businesses and homeowners, are not as onerous as they first appeared. Lloyds, for instance, hopes to start paying dividends in 2009 while RBS also intends to pay dividends faster than five years.

The other main issue is over remuneration and the ban on bonuses this year for the banks taking taxpayer funds. Pirc said it had been a long-standing critic of pay practices at Barclays, particularly for Bob Diamond, the president of the bank and head of the investment banking arm Barclays Capital.


Jill Treanor and David Teather

The GuardianTramp

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