Banking News Could Barclays Be Next Hit By The Credit Crisis 1467
Could Barclays be next hit by the credit crisis?
25 April 2008 / by Rebecca Sargent
Earlier this week, Royal Bank of Scotland (RBS) announced it was issuing a rights issue in order to boost capital and its balance sheet. The bank resorted to these measures following write-downs of £5.9 billion as a result of sub-prime mortgage lending.
Rumours are today rife that Barclays will soon be following in RBS’ footsteps following the bank’s failure to rule out a rights issue in its annual meeting. Barclays chairman Marcus Agius, speaking to investors yesterday refused to rule out the possibility of a rights issue but reassured them that the bank had other options open to it.
In a statement released before the Annual General Meeting, Barclays’ chief executive, John Varley announced that although Group profit for January and February was in line with 2007, profit loss in March brought the Group profit for the first quarter of 2008 below target.
In the statement, speaking of the current financial turbulence and its effects on the banking sector, Mr Varley said: “The second half of 2007 was as hard a six month period as I can remember, and conditions in some markets in 2008 have remained difficult.
“But we must maintain a sense of perspective. Interest rates are moving lower. Employment is high. World economic growth this year will be between three and four per cent again. Governments and central banks around the world are showing their determination to help the financial system recover.” Mr Varley said in an attempt to reassure investors.
In addition to a fall in profit, Barclays’ shareholder return has underperformed this year, sparking the rights issue rumours. Speaking of the bank’s setback, Mr Varley said: “I’m disappointed that our stock price performance has been poor over the last twelve months. We can’t control the price at which the stock trades, but that doesn’t prevent me empathising with shareholders.
“We must create the conditions in which the stock price can move ahead again, and concentrate on what we can control – which is the profit performance of the Group.” Mr Varley continued, hinting at the requirement for action.
Last year, Barclays announced a write-down of £1.6 billion as a result of risky assets, and, following the extent of RBS’ sudden write-downs, experts are reluctant to expect Barclays’ write-downs to remain low.
Experts believe that as capital markets continue to deteriorate, Barclays may find itself forced to write-down more capital and therefore request a rights issue in attempts to salvage the bank’s balance sheet in the same way that RBS did earlier this week.
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