Barclays knows best – a scaled back clawback

What kind of investor turns down free stock? A Barclays investor, it seems, judging by the results of the bank’s £1.7bn placing released on Wednesday.

As part of the oh-so-clever funding package accompanying its bid for ABN Amro, some 230m of the 889m Barclay shares being bought by the Chinese and Singaporean governments have first been offered to existing Barclays holders through a clawback arrangement. Offered at 740p per share, against a market price of 730p, the new stock will only be issued if the bid for ABN succeeds.

Under the British system, in certain circumstances existing investors have pre-emption rights when companies come to issue more stock, and god help anyone who meddles with those rights. While uncompelled to do so in this case, Barclays was doing the noble thing in giving its shareholders a chance to participate in this fundraiser.

Yet of the 230m available, only 154m were taken up. This is despite the fact that the shares will only be issued if Barclays’ share price moves sharply higher, since only then will its paper-heavy terms for ABN trump the 90 per cent cash alternative already on the table from RBS and its friends.

So the clawback stock was essentially a free option for several months. And only two-thirds of this freebie was taken up. Which is very suspicious.

So the London air was thick on Wednesday with allegations of skulduggery — of claims that the banks on the deal (JPMorgan Cazenove, Citi, Credit Suisse and Deutsche) had scaled back Barclays existing holders so as to make sure the Chinese and Singaporeans got the chunky stakes they had signed up for. They now are getting a total of 735m.
All of which was met by outraged denials from the Barclays camp, who were insisting that anyone who got scaled back was probably asking for more than their just allocation and/or was deemed, intriguingly, to be a potentially “unstable shareholder.”

A delicious row is now clearly underway.

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