This is proving to be a difficult week for Barclays, down another 20p, or 13 per cent, to 130p on Thursday.
All the banks were being hit - as was the market generally, with London following Wall Street down. But there’s something about Barclays…
Just say the Middle Eastern Highnesses re-capitalising the bank decide not to exercise the 1.5bn warrants that came free with the £3bn of Reserve Capital Instruments. Just say. The warrants might have a five year shelf life and stacks of implicit value. But right now the market price is sitting at a 35 per cent discount to the strike price.
Failure to exercise would leave Barclays with a capital deficit of £7.4bn, rather than £4.4bn, according to figures from JPMorgan. So if someone was to decide that the good Sheikhs from Abu Dhabi and Qatar are unlikely to exercise, Messrs Varley and Diamond might need to pay painful a visit to No 11 Downing Street.
Carla Antunes da Silva at JPM has turned notably bearish on Barclays, slashing earnings estimates by 52 per cent for 2009 and 53 per cent for 2010.
The analyst’s biggest revisions cover Barclays Commercial bank and UK retail. Barclays Capital estimates remain broadly unchanged, but then she was already on record forecasting a collapse in investment bank-related profits - expected to fall from £3bn in 2008 to £1.08bn in 2009 and then £855m in 2010.
Middle Eastern government ownership comes at a higher price than UK government ownership (c.£3.8bn, see Table 27). Whilst maintaining some strategic flexibility, this has come at the expense of existing shareholders. In addition to granting 5-year warrants diluting upside above 197.775p per share for that period, the RCIs have twice as long a duration as the preference shares being written to the government by peers. We assume the warrants are exercised, otherwise the capital deficit widens from £4.4bn to £7.4bn, which ironically would potentially leave the need to tap the government facility in the future. Note this is still conditional on shareholder approval, sought at the EGM on 24 Nov 08.
Related links:
Chastising BARC: “an issue of grave concern” - FT Alphaville
Barclays opens a gulf with its shareholders - Nils Pratley
