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BARCLAYS DEFIES INVESTOR OUTRAGE

Sunday November 2,2008

By Geoff Ho

Barclays is to defy its investors and push ahead with its controversial plans to sell a 32 per cent stake in itself to Middle Eastern investors.

The bank says it will plough on with plans to sell £5.8billion-worth of shares to the state investment funds and royal families of Qatar and Abu Dhabi.

The deal, announced on Friday, is designed to keep it out of the clutches of the UK Government and help it meet new capital requirements of the financial watchdog the Financial Services Authority.

However, it has angered investors who are demanding the terms be changed.

“Short of investors turning up on our doorstep with the money we need on Monday morning, there is no chance of this deal being renegotiated,” one Barclays source said.

As part of the deal, the bank will attempt to raise £1.5billion from its largest existing investors, although on less generous terms than those offered to the Middle Eastern investors whose exotic, high-yielding shares make tax-free payments of 14 per cent a year.

Large institutional investors are livid because the deal will dilute the value of their holdings and because it violates City rules, which state all shareholders are offered shares on equal terms.

Investors are also up in arms since the deal will see Barclays scrap its £2billion, final-year dividend, which many small shareholders rely upon for income.

The investors are also angry because the Qatari deal is more expensive than the Government bail-out offered to Royal Bank of Scotland, HBOS and Lloyds TSB.

Several institutional investors have made their feelings known to the bank and are demanding that it revises the terms of its deal with Qatari investors.

Barclays has chosen to raise money from the Middle East because it believes there are no other viable options.

Although the bank would have liked to have held a traditional rights issue, doing so was viewed as being too risky, given that they take at least two months to arrange and the pummelling the stock markets are taking.

Barclays also felt it could not take up the Government’s bail-out offer because that would have damaged the bank’s credibility.

Barclays also did not want to expose itself to Government interference in the ways it operates, from lending decisions to executive bonuses.

“The guys we have brought in [the Qataris] want us to make money, not save struggling basket weavers in East Anglia,” said a source close to Barclays.

RBS, Bradford & Bingley and HBOS held traditional rights issues earlier this year but have since been either partly nationalised or taken over.