2013 Deals of the Year: Barclays’s Hefty Capital Raise

Barclays didn’t have time on its side. Last July 10, Jim Renwick, the bank’s London-based chairman of equity capital markets for Europe, the Middle East and Africa, and Asia Pacific, got a surprise call from the board of directors. The U.K.’s Prudential Regulation Authority wanted Barclays to raise its leverage ratio — capital to total assets — from 2.2 percent to at least 3 percent by June 2014, one year earlier than anticipated; the regulator planned to announce that change on July 31, the day after the bank’s first-half results would be released.

Barclays turned to its own bankers for a £5.8 billion ($9.1 billion) rights issue and a $2 billion hybrid debt offering. Among the key players in the rights issue — the biggest capital raising by a U.K. bank since HSBC Holdings drummed up £12.5 billion four years earlier — was Renwick, an Australian who joined the firm in 2009 from UBS, where he was a vice chairman of investment banking. After the PRA caught it flat-footed, Barclays turned crisis into opportunity by getting its issue out the door before an expected flood of similar regional offerings in anticipation of 2014 stress tests as the European Central Bank takes over banking supervision.

Renwick and a group of fellow Barclays senior executives led by then–finance director Christopher Lucas and treasurer Benoit de Vitry met quickly with joint corporate brokers Credit Suisse Group and Deutsche Bank. They agreed to guarantee the underwriting and announce the rights issue on July 30, the same day that Barclays would reveal a £12.8 billion hole in its balance sheet. The prospectus contained many legal disclosures. Among them: a warning that July and August earnings for Barclays’s investment bank would be “significantly below” those from the same period in 2012. To avoid having to call off the deal if the other banks balked at such risks, Renwick and company secured their agreement not to pull out.

Barclays said it would pay fees totaling 1.62 percent of the issue’s value, well below the 2.75 percent that HSBC had forked over for its 2009 rights offering but still a whopping $158 million. To soften up its brokers and spread risk, Barclays also signed up Bank of America and Citigroup as underwriters, knowing they would accept a low fee for the chance to work on the deal.

After the July 30 announcement, Barclays brought on nine additional banks to prevent any underwriter from holding more than 3 percent of its equity in a failed issue. And having published the prospectus on September 16, it further diluted risk by having its brokers offer subunderwriting, ultimately involving some 30 banks and 40 shareholders and institutional investors in the offering.

Priced at 185 pence a share, a 35 percent discount to Barclays’s stock price before the announcement, the rights issue closed on October 4 and raised the equivalent of 15 percent of the bank’s £43.7 billion market capitalization. Existing Barclays shareholders snapped up almost 95 percent; book runners sold the rest for £463 million, at 268 pence a share.

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On November 13 a Barclays team led by London-based managing director Steven Penketh priced $2 billion worth of perpetual subordinated contingent convertible bonds. The so-called coco bonds can convert to equity if the bank’s tier-1 capital ratio drops below 7 percent of risk-weighted assets. Barclays was one of the first global banks to issue tier-1 cocos to meet Basel III leverage rules and get in front of the new stress tests. After attracting $10 billion in investor demand, Barclays priced the debt offering at 8.25 percent.

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