Skip to main content

Newsroom

July 31, 2013

Don’t buy the hype about Barclays’ capital-raising

Barclays says that its plan to shore up its balance sheet is both “bold and decisive”. Is it? Let us cut through the rhetoric and retain a touch of perspective. Banks are in the business of taking risks, which sit on their balance sheets. Barclays has a balance sheet equal in size to the annual economic output of the UK. That offers considerable opportunity for loss.

Barclays currently funds 97.8 per cent of its risk-taking with debt and 2.2 per cent of its exposure with loss-absorbing equity. Prodded by its regulator, Barclays has agreed to reduce its debt funding to 97 per cent and raise its equity funding to £3 for every £100 of risk taken. This is progress. It is certainly better than a poke in the eye with a stick. But does it deserve to be called bold and decisive?

Once the new equity level has been achieved, Barclays will be able to suffer a 3 per cent decline in asset values before going bust or calling upon the taxpayer for assistance. Are you reassured? The 3 per cent target translates into a capital shortfall of £12.8bn. The gap will be plugged with a combination of new equity, hybrid debt, retained earnings and balance-sheet shrinkage.

***

Read the full Financial Times op-ed from Robert Jenkins here (subscription required)

In the News
Share

MEDIA REQUESTS

For media inquiries, please contact us at
press@bettermarkets.org or 202-618-6433.

Contact Us

For media inquiries, please contact press@bettermarkets.org or 202-618-6433.

To sign up for our email newsletter, please visit this page.

Name(Required)
This field is for validation purposes and should be left unchanged.

Sign Up — Stay Informed With Our Monthly Newsletter

This field is for validation purposes and should be left unchanged.

For media inquiries,

please contact press@bettermarkets.org or 202-618-6433.

Donate

Help us fight for the public interest in our financial markets, protecting Main Street from Wall Street and avoiding another costly financial collapse and economic crisis, by making a donation today.

Donate Today