Barclays shares drop as it reports a fall in profits and plans to fill £12.8bn capital hole

Barclays has reported a 17 per cent fall in half year adjusted profits to £3.591bn as it was hit by the cost of a group-wide restructure in the wake of the Libor rate-rigging scandal. The bank also reported that its capital hole was much larger than thought at £12.8bn and announced a £5.8bn capital-raising rights issue. Its share price is down around 5.7 per cent at the time of reporting.

In the six months to 30 June 2013, Barclays said its adjusted income fell three per cent to £15,071bn, as income growth across the majority of business were offset by the cost of group wide funding deposit growth. Its investment banking unit saw a stable income of £6.473bn driven by increases in equities and prime services and investment banking offset by a decrease in fixed income, currency and commodities income.

In addition, the bank said it had set aside £1.3bn to deal with payment protection insurance mis-selling claims, and £650m for provisions related to interest rate swaps.

It estimated around £42bn of Funding for Lending capital was lent to UK households and businesses in the first six months of the year.

Barclays also reported that its capital hole was a larger-than-expected £12.8bn, meaning Barclays has some serious work to do to reach the three per cent leverage ratio target by June 2014 (current ratio is 2.2 per cent).

To cover the shortfall, Barclays will be issuing £5.8bn in new shares, by way of one new ordinary share (priced at 185p: a 40.1 per cent discount on the closing price of 29 July 2013) for every four existing ordinary shares held. It will also be issuing £2bn of bonds that can be turned into shares or wiped out if the bank gets into trouble. The rest will be generated from planned balance sheet actions and retained earnings generation.

Chairman David Walker said of the plan:

After careful consideration of the options to meet the PRA request for a 3% leverage ratio by June 2014, the Board has decided on a set of actions, including the rights issue, to meet this target, whilst continuing to deliver our strategy under the Transform programme. The PRA has agreed and welcomes our plan.

As a result we expect Barclays to be in an even stronger capital position, allowing us to increase the dividend payout ratio ahead of the original Transform target.

The Board expects that Barclays will continue to reduce leverage further, whilst maintaining target capital levels, and will aim to do so in a way that achieves sustainable returns above the cost of equity.