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Barclays and HSBC shares rise after rejecting Government bail out

14 October 2008 / by Rachael Stiles
Barclays and HSBC have seen their shares rise after they both announced that they were rejecting the Government's bail-out plan, while RBS, HBOS and Lloyds TSB have suffered more falls in their share value.

In one day, RBS shares fell 8.4 per cent, Lloyds TSB fell 14.5 per cent, and HBOS saw its value plummet 27.5 per cent after it was announced that they would be accepting capital from the Government as part of its £50billion bail-out plan for the banks. Barclays, meanwhile, enjoyed a 3.7 per cent increase in its share price.

Instead of accepting part-nationalisation in return for a cash injection from the Government, like its three rivals, Barclays has said that it will avoid the constraint of being owned by the taxpayer, opting to raise the £6.6billion of funding it needs under its own steam.

Barclays chief executive John Varley believes that taking help from the bail-out will put the other banks at a disadvantage, leaving them restrained by their government support, while he wants his firm to "protect the right of self-determination", believing that it is able to push through on its own.

Under normal circumstances, Barclays' cash call might be seen as an admission of defeat, but, unlike its nationalised rivals, Barclays will not be constrained by rules applied to government-owned banks, such as not being seen to take an unfair advantage, having limited pay scales and risk guidelines, and not taking more than a modest market share.

The defiant bank will raise the capital it needs by offering £6.6billion of preference shares and ordinary equity, with a further £3.5billion of capital coming from cost-cutting tactics such as balance sheet management, operational efficiencies, and scrapping its end of year dividend – a £2billion pay-out for shareholders. If the plan works, it will leave Barclays in a good strategic position in terms of the risks and opportunities that it can take.

Shareholders have largely welcomed the bank's continued independence, although it poses a higher risk than going cap in hand to the Government, and there are questions being raised as to Barclays' other motives – whether Mr Varley was equally as concerned about finding himself out of a job, just as the bosses from those banks which have opted for Government help have found, as he was about maintaining Barclays' independence.

An influx of deposits into Barclays savings accounts helped the bank to see a huge improvement in trading for September, significantly exceeding trends seen in the first half of 2008.

Should Barclays' attempts at going it alone come to nothing, or any of its proposed sources of capital do not materialise, then it is still eligible to apply for help from the Government, and will have access to funds made available by the Bank of England's extended Special Liquidity Scheme.

Meanwhile, HSBC shares also rose, by 7.5 per cent, after it reiterated that it would not be taking capital from the Government, instead confirming that it would be injecting £750million of equity from its own resources.

Standard Chartered has also said it will not be needing equity from the Government, which boosted its shares by 20 per cent.

© Fair Investment Company Ltd