The mental image of a barrel and the sound of scraping sprang to mind on Tuesday after the WSJ reported that Barclays is seeking investment from two state-backed Russian banks to shore up its capital base.
The British bank has spoken to OAO VTB and OAO Sberbank about potential capital injections, but it wasn’t clear Monday if Barclays’ efforts had been successful.
So, British government money not good enough then? Russian state funds clearly come with less conditions - although the FT reported later that talks with VTB and Sberbank have not continued beyond initial conversations.
VTB is 77.5 per cent owned by the Russian Federation, although the bank raised $8bn in a popular partial flotation in May last year. Similarly, the Russian Federation is a 60 per cent holder in Sberbank, one of Russia’s oldest savings banks.
This is the same Sberbank that saw its share price crash 20 per cent last Friday ahead of the suspension of trading in Moscow - the same day that Standard & Poor’s placed VTB on negative ratings watch, following its earlier warning that it might cut Russia’s sovereign rating.
The attempt to tap Russian investors follows the move in July to raise £4.5bn from the Qatar Investment Authority and Japan’s Sumitomo Mitsui Banking Corporation. Both those strategic investors now find themselves badly underwater.
In fact, Barclays’ reputation is probably not too high with the regular sovereign wealth community. China Development Bank and Singapore’s Temasek bought in last year at 720p a share, compared with the current quote of 190p.
Barclays has committed to raise £6.5bn by next spring, although it declined the chance to participate in the British government’s recent £37bn bailout, thereby avoiding governmental conditions such as caps on executive bonuses.
But what happens now if Barclays can’t interest outside investors? Simple, one official told FT Alphaville: “They will pay an enhanced penalty rate.”
