BARCLAYS is working on a new debt instrument to shore up its capital base ahead of the introduction of the Basel III rules.
A bond that would pay out less if the bank’s core Tier 1 capital ratio dropped below the Basel threshold of seven per cent is in the works.
The instrument would differ from convertible bonds in that it would not convert into equity, and would also allow the bond’s value to be written up if the bank recovers and restarts dividend payments.
“The issue is how to make this kind of instrument acceptable for investors,” a source said.
A person familiar with the situation stressed such a bond was one of several options being considered, but that the bank stood by chief executive Bob Diamond’s pledge two weeks ago that it would not ask shareholders for cash to help strengthen its capital base.
Diamond then said that “from what we know and we can see today, we believe we have enough equity capital, and it is not our intention to turn to our shareholders for more”.
The assurance has left the bank looking for alternative sources of capital to prepare for Basel before it comes into full force in 2019.