Salz Review - Wall Street Journal

Salz Review
An Independent Review of Barclays’ Business Practices
42
5.16 Barclays publicly explained on 13 October 2008 that it had identified the need “to
raise new external capital as part of its overall plan to achieve the new higher capital
targets set by the UK FSA for all UK banks”. John Varley stated that the “... capital
raising provides certainty and speed of execution”. 58 Barclays therefore launched a
further round of capital raising to ensure that it would remain independent.
Approximately £7.1 billion was raised in October and November 2008 through the
issue of £3 billion of warrants and an issue of £4.1 billion of mandatorily convertible
notes. £1.25 billion of the mandatorily convertible notes were offered to existing and
other institutional shareholders by way of a limited placing. The investors for this
were Qatari interests, through Qatar Holding LLC and Challenger Universal Limited,
together with the ruling family of Abu Dhabi. However, existing shareholders were
not offered full pre-emption rights in this capital raising, which Barclays said would
have required a period of market risk exposure of up to two months. The Board
believed this represented “a risk that is unacceptable to shareholders at this time”. 59
In addition, Barclays said that “there was considerable uncertainty relating to the
capacity of current shareholders to subscribe for the total amount of capital
required”. 60
5.17 Barclays gave significant consideration to a rights issue or open offer (both of which
provided pre-emption to existing shareholders). They considered neither to be viable
given the need to raise capital quickly, the size of the capital raising, the uncertainty
about take up by existing shareholders (informed by market testing) and the
requirements of the new investors whose capital was judged necessary for certain
minimum levels of investment. Barclays may not have fully anticipated the degree of
shareholder concern for the structure, having had preliminary discussions with the
Association of British Insurers (ABI) and the National Association of Pension Funds
that did not indicate major concerns. In addition, Barclays may have considered that
existing shareholders’ concerns would be reduced by the tranche of Mandatorily
Convertible Notes made available to them.
5.18 Nevertheless, the decision was poorly received by some shareholders, whose
approval of the capital raising was required by a special resolution, given the size of
the non-pre-emptive issue. The ABI gave the fundraising an ‘amber’ rating, which
press reports at the time suggested was an indication of concerns over corporate
governance and meant that shareholders should take their own decision on the vote
to approve the capital raising. Research, Recommendations and Electronic Voting, a
corporate governance advisory body, recommended that shareholders abstain from
voting. Barclays offered various concessions to shareholders, including making
£500 million of Reserve Capital Instruments available to existing institutional
investors and promising to structure any new capital raisings for the following two
years to give its then shareholders full rights of participation. The capital raising was
approved by special resolution on 24 November 2008. Qatar Holding’s stake in
Barclays rose to 12.7% as a result of the capital raising, and it remains one of the
bank’s largest shareholders despite the sale of £1.37 billion of shares and warrants in
58 Barclays, “Barclays Announces Capital Raising”, press release, 31 October 2008.
59 Ibid.
60 Barclays, “Chairman’s Letter to Shareholders”, announcement, 7 November 2008.