Barclays shares slump as it confirms regulator talks to fix balance sheet

Shares in Barclays have dropped by more than 3.5 per cent today as it confirms that it is in discussions with the Prudential Regulatory Authority (PRA) "regarding its financial and capital management plans" (release).

The 9.46 announcement appears to have had little impact on the bank's shares, which dropped on the open. The statement has merely confirmed what has been widely speculated for some time.

Mike van Dulken, head of research at Accendo Markets, commented:

News that the UK’s SFO is stepping up its investigation into how the bank managed its 2008 capital bolstering, combined with fears over new leverage ratios impacting all-important investment bank division’s performance have added to the negative sentiment on the shares as have expectations of further provisions being taken for mis-selling scandals. Given consensus expectations for a 13% YoY fall in pre-tax profits traders will be looking for guidance on restructuring aimed at scaling back from the now much-criticized era of focusing on financial performance over client servicing.

What does the future hold for the dominant investment banking division. Shares off their 2yr highs of 338p. Bailed out peers RBS and LLOY may steal the thunder this reporting season with the latter expected to have returned to profitability and a step closer to re-privatization.

Our banking reporter Tim Wallace:

Last month the Bank of England’s prudential regulatory authority (PRA) published a review of lenders’ capital positions and found Barclays did not meet the required three per cent leverage ratio by 0.5 percentage points.

The bank had planned to plug this gap by the end of 2015, although the PRA had indicated it could require a faster timetable.

Barclays is now expected to unveil a plan to fix this ratio, drawn up in conjunction with the PRA, when the bank unveils its quarterly results on 30 July.

The bank can meet this target in a range of ways, with one option being to retain profits. However, if the bank has to accelerate its plans then it may have to cut lending, sell non-core units, or turn to the capital markets to raise funds.

The PRA‚Äądoes not want the bank to reduce lending and analysts believe possible outcomes include a £3bn cash call or a £7bn rights issue.

(Full article)