Barclays' £6bn cash-raising efforts to begin on Friday 13th

Bank prepares for trading of new shares after being ordered to make itself less vulnerable to future financial shocks

Barclays has chosen the inauspicious date of Friday 13 September to fire the starting gun on a near £6bn cash-raising after the bank was ordered by the regulator to make itself less vulnerable to financial shocks.

Investors have been told they must be on the share register by next Friday to take up Barclays' offer of one new share at 185p for every four currently owned. The price is a 40% discount to the value of the shares before the money-raising was first announced.

Barclays, which was told by the Prudential Regulation Authority in July it must plug a £12.8bn hole in its balance sheet, said it would be issuing a prospectus for the rights issue in due course but gave no exact date.

The new shares are scheduled to start trading on 3 October after what would be the largest rights issue by a bank since 2009 when the country's lenders were engulfed in the worst of the recent financial crisis.

Barclays also plans to issue £2bn of bonds, shrink the size of the bank by £2.5bn and make up the rest of the capital shortfall by holding back earnings rather than paying them out to shareholders or as staff bonuses.

Antony Jenkins, who came as chief executive a year ago, said in July that the cash call was part of a "bold and balanced plan" to bolster the bank's leverage ratio – a measure of the riskiness of its lending – from 2.2% to 3% by June 2014.

Barclays avoided the need for a government bailout in the financial crisis, unlike competitors Lloyds and Royal Bank of Scotland, but still announced a net loss of more than £1bn for 2012.

Shares in Barclays rose 1.5% last night but there had earlier been nervousness about the rights issue when the man who would have been at the centre of it, finance director, Chris Lucas, announced plans to step down on 16 August. The 52-year-old was expected to leave next year but said he was departing early due to ill health.

Lucas is one of four current and former directors being investigated by City regulators over a previous controversial cash raising from Qatar that made it possible for the bank to avoid a government bailout. He is being replaced by Tushar Morzaria, who is based in New York, and was expecting a long handover period with Lucas.

It is the latest personnel change at the top of the bank since Jenkins was promoted to take over from Bob Diamond, who quit following a £290m fine on Barclays for rigging Libor inter-bank lending rates.

The former chairman, Marcus Agius, and chief operating officer, Jerry del Missier, also left a year ago.

Jenkins has been desperately trying to open a new chapter for the scandal-hit Barclays, which in the last six months of 2012 was the most complained about high street bank in Britain. He has introduced a range of strategies but some aspects of the bank's past are proving hard to shrug off. In July US regulators upheld a fine on Barclays and four of its traders of $453m (£300m) for allegedly manipulating electricity prices in California. The bank said it intended to "vigorously defend this matter" but one analyst warned that the decision by the Federal Energy Regulatory Commission could derail a deferred prosecution agreement signed with the US Department of Justice over the bank's involvement in Libor-rigging.

Article Source : http://www.guardian.co.uk

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Ex-Co-op boss fights back, dragging Bank of England into Britannia row

Neville Richardson counters regulator's claims that Co-op's problems stemmed from bad debts on loans by Britannia building society

The former chief executive of the Co-op Bank blamed his bosses and regulators at the Bank of England for the bank's current financial problems and said they had wrecked the mutual society's chances of becoming a major high-street lender.

Neville Richardson told MPs that he resigned in 2011 when the Co-op Group board ignored his repeated warnings that plans to buy more than 600 Lloyds branches were a step too far for a bank wrestling with a poor economic situation and the after-effects of a major merger. He also warned against a cost-cutting drive that undermined the day-to-day running of the bank.

He told the Treasury select committee that the bid was the "right deal at the wrong time" and put Co-op Bank at "unacceptable risk". "The board and chief executive of the Co-op Group at that time did not accept my warnings and were determined to press ahead. That is why I stepped down."

Richardson was defending his record after Andrew Bailey, the head of the Prudential Regulatory Authority, alleged that the Co-op bank's problems related to bad debts on loans granted by Britannia building society prior to its merger with the Co-op. Richardson is a former chief executive of the Britannia and moved to the top job at the Co-op after the merger.

He argued that he left the bank in good shape, with "no issues". He denied that Britannia had brought with it a history of bad debts on its corporate loans, saying the debts were well managed and in line with other major lenders.

After Richardson left, impairment charges soared. In 2012 the Co-op Bank set aside £468m to cover poorly performing loans, up from £115m in 2011. Richardson blamed the bank's parlous situation on a change in the way regulators account for bad debts and mismanagement of the business.

The Bank of England immediately issued a terse statement defending Bailey. It said: "We strongly disagree with Neville Richardson's view regarding the Britannia loan book situation. The evidence that Andrew Bailey gave to the TSC was correct."

Richardson, who left the business with a £2.5m payoff and £2.1m in pension payments, was freed by parliamentary privilege to talk about his tenure after he signed a non-disclosure agreement with the Co-op.

The Co-op now needs to find £1.5bn in extra capital. Some will come from a "bail-in" of small investors holding Co-op bonds and the mutual also faces having to float up to 49% of the business on the stock exchange to raise further funds.

The regulator said he warned the Lloyds board when Co-op bank was named as the preferred bidder that it lacked the necessary capital to support its bid.

MPs are investigating why the deal under which Co-op was to buy the Lloyds branches collapsed this year. The probe reflects widespread concern at the failed attempts to break up the dominance of the major high-street lenders, which the government has been keen to encourage.

Virgin Money, which took over Northern Rock, has made only limited inroads, while the Nationwide building society, which absorbed several smaller societies in the aftermath of the financial crash, has also struggled under the weight of new capital requirements.

The Co-op Bank expanded from 100 branches to more than 300 following the merger with Britannia and was due to hit the 1,000 mark once it absorbed the Lloyds branches.

Andrew Tyrie, the chairman of the Treasury committee, said: "There appears to be a yawning gulf between the evidence the committee heard today from Mr Richardson and the evidence we heard previously from Mr Bailey. The committee will be investigating this a good deal further."

Bailey is now expected to be recalled before the committee along with several senior officials from the Co-op and Lloyds to discover when the bad debts came to light.

Speaking in front of the committee in June, the chief executive of Lloyds, Antonio Horta-Osorio, said Lloyds had been aware of Co-op's capital problems long before the deal collapsed.

Co-op Bank withdrew its offer for the branches in April, blaming the "economic environment" and "increasing regulatory requirements on the financial services sector".

Article Source : http://www.guardian.co.uk

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Strong services data signals UK growth is on track to outstrip rest of Europe

PMI survey's all-sector reading hits 15-year high, with order books growing at fastest pace since Tony Blair became PM

Britain's recovery is on track to outstrip the rest of Europe following a strong performance by the services sector in August.

The purchasing managers index, published by Markit, jumped to a new post-financial-crash high of 60.5 in August, up from 60.2 in July and its highest level since December 2006.

Markit said the latest survey of the all-important sector, which accounts for around 78% of the economy, sent the all-sector PMI to its highest level since the series began in 1998.

Chris Williamson, the data provider's chief European economist, said growth was now accelerating in manufacturing, services and construction, and that GDP growth could exceed 1.0% in the third quarter of the year.

The broad-based nature of the recovery will encourage George Osborne, who in public has remained careful to highlight the risks to the recovery.

Williamson said the latest data showed that growth was principally supported by a rise in new business.

Order books at companies ranging from banks to restaurants rose at the fastest pace since May 1997, the month Tony Blair first became prime minister.

"There were many reports of an ongoing strengthening of market confidence which helped companies convert enquiries into hard contract wins. Marketing and an improvement in the housing market were also noted as reasons for higher sales volumes," he said.

However, hopes that growth would bring a quick end to persistently high unemployment were dashed after the survey of services firms showed a slowdown in hiring.

The sector reported a net increase in employment for an eighth month in a row, but the rate of growth was described as "marginal".

Markit said: "A number of panellists attributed the slowdown to the non-replacement of leavers or cost considerations."

The lack of jobs growth will dash expectations that the Bank of England will raise rates earlier than expected in 2016.

The Bank of England governor, Mark Carney, said last month that he wanted to wait until the economy created an extra 750,000 jobs before considering a rise in base rates.

Martin Beck, UK economist at Capital Economics, said the services survey "adds to the relentlessly good news on the UK economy".

He said: "Following surprisingly strong gains in August's manufacturing and construction surveys, today's services result at face value points to quarterly GDP growth in Q3 not far off a rip-roaring 2%.

"However, this does not necessarily indicate that interest rates will have to rise earlier than the MPC expects. In common with the manufacturing and construction surveys released earlier this week, the expansion in services output suggested by the CIPS survey was accompanied by a softening in the survey's employment balance, which dropped from 53.6 to 50.6.

"This supports our, and the MPC's, view that rising productivity will accommodate much of the recovery in demand, with the unemployment rate taking a stubbornly long time to fall to the Bank's 7% threshold."

Across Europe's major economies services firms signalled that a year-long recession was coming to an end, with the exception of Italy, which failed to improve on July's poor performance.

The Italian services PMI improved only slightly on the previous month following a rise from July's 48.7 to 48.8. The August figure means another monthly contraction, in an economy that is already expected to shrink steadily this year. The City had hoped for a number close to 50, the cut-off between growth and contraction.

Article Source : http://www.guardian.co.uk

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