Barclays Shares Tumble on £7bn Capital Raising Talks

Barclays' shares took a hit in early trading after the bank revealed that it would update investors with possible capital raising plans.

Reports by The Sunday Times and The Telegraph saod the bank had discussed a possible £4bn (€4.6bn, $6.1bn) rights issue with investors as part of a fundraising programme aimed at filling a capital black hole of £7bn.

Barclays did not respond to the Telegraph report but told IBTimes UK: "Barclays PLC notes the media speculation about a possible equity capital raising."

"Barclays has been in discussions with the Prudential Regulatory Authority (PRA) regarding its financial and capital management plans. Barclays will update the market alongside its Interim results on Tuesday 30 July."

Under new rules, all British banks are forced to hold the equity capital equivalent to 3% of their total outstanding loans.

Meanwhile, reports said that the UK Treasury would grant the Serious Fraud Office £2m to help it investigate Barclays' fundraising activities during the onset of the financial crisis after it avoided a state bailout and instead received cash from Qatar authorities.

Shares dropped by nearly 4% by 11:15 BST to reach 308.80p as market participants speculated over what the update could entail.

"Barclays shares in the doghouse this morning, down over 3% ahead of tomorrow's second quarter / first half results on concerns that a capital raising will be announced to help meet new capital adequacy rules," said Mike van Dulken, head of Research at Accendo Markets.

"In fact the bank has just responded to speculation, which sounds like confirmation that share price dilution is on the way. News that the UK's SFO is stepping up its investigation into how the bank managed its 2008 capital bolstering, combined with fears over new leverage ratios impacting all-important investment bank division's performance, have added to the negative sentiment on the shares as have expectations of further provisions being taken for mis-selling scandals."

Comparatively, other bank shares provided a mixed bag in the first half of the trading session. HSBC shares traded in positive territory while Banco Santander rose by nearly 1%.

However, partly state-owned lender, the Royal Bank of Scotland, shares dropped by 1.5% while Lloyds traded almost flat.

"Bailed out peers RBS and Lloyds may steal the thunder this reporting season with the latter expected to have returned to profitability and a step closer to re-privatization," said van Dulken.

"However, with Barclays, given consensus expectations for a 13% year-on-year fall in pre-tax profits, traders will be looking for guidance on restructuring aimed at scaling back from the now much-criticised era of focusing on financial performance over client servicing.

"What does the future hold for the dominant investment banking division? Barclays' shares off their 2 year highs of 338p."