Barclays under fire for Middle Eastern fundraising

Barclays will avoid selling a stake to the UK government, an option taken by Royal Bank of Scotland, Lloyds TSB and HBOS

Barclays has boosted its balance sheet without turning to the UK taxpayer for cash but instead faced criticism for allowing Middle Eastern states to take a 30% stake in the bank.

The intricately structured financing, under which the Abu Dhabi owner of Manchester City football club will become the single biggest investor, also required Barclays to raise £1.5bn in a share placing on the open market. After the stock market closed last night, Barclays admitted it had found buyers for only £1.25bn.

In total the bank still managed to raise just over £7bn, more than the £6.5bn it had promised the UK government it would find as part of its historic bank bail-out programme announced last month. In raising the funds, the bank stunned critics who had been convinced it would fail to meet the government's deadline - which extended until next spring.

After initially rising 9%, Barclays shares slumped 12% to close at 178.9p as the City digested the terms being paid by the bank to attract the financing from the Middle East and the weight of the new share placing on the stock market.

John Varley, the Barclays chief executive, defended the terms being offered to encourage the royal families of Abu Dhabi and Qatar to take a combined share holding of more than 30%. Analysts said the terms being offered by the government to Royal Bank of Scotland, HBOS and Lloyds TSB to raise a combined £37bn appeared less onerous.

Analysts at brokers Keefe Bruyette & Woods said: "Barclays has avoided having the UK government on its shareholder register, but it has come at a cost to existing common shareholders... The unquantifiable element is whether this will ultimately prove to be a price worth paying given the current uncertainties in the terms and conditions that come with the route to raising capital being chosen by RBS, Lloyds TSB and HBOS."

Avoiding the UK government bail-out means Barclays can avoid a ban on executives bonuses, paying dividends and a demand to increase lending to small business and would-be home owners.

This prompted questions about whether Varley and his management team, including Barclays president Bob Diamond, had been keen to avoid the bail-out so they could keep paying bonuses.

James Eden, banks analyst at Exane BNP Paribas, posed the question to the Barclays management, while Liberal Democrat Treasury spokesman Vince Cable also raised the issue.

"We have to ask why Barclays is willing to offer a better deal to foreign investors than the British taxpayer," Cable said. "The answer is simple: they don't want the British government stopping them from paying massive bonuses to their executives."

Marcus Agius, Barclays chairman, refuted the suggestion. He insisted the ability to keep paying bonuses "had nothing to do with this at all".

"It's to do with self-determination," he said.

Shareholders must approve the share sale to Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family, who will provide £3.5bn and become Barclays' largest shareholder with a 16.3% stake, and the Qataris, who are providing up to £2.3bn, at a shareholder meeting on November 24.

Barclays is paying annual interest of 14% on the financing instruments it is issuing until June 2019, while the government is charging a 12% coupon for five years for its support. Barclays argued that its payments were tax deductable, reducing the cost.

The bank also brought forward a trading statement in which it insists it profits for the first nine months of the year were "slightly ahead" of 2007 despite the turmoil in the market. This was despite credit crunch writedowns rising by £1.2bn to £4bn in its Barclays Capital division.

The bank also revealed it took a surprising 32% share of the mortgage market in the third quarter.


Jill Treanor

The GuardianTramp

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