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Barclays capital shortfall bigger than feared

Barclays capital shortfall bigger than feared
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Barclays shares plunged further on Tuesday as it announced plans to raise 5.8 billion pounds (6.7 billion euros) from its shareholders.

The sale of new shares is in response to calls from Britain’s financial regulator for the bank to strengthen its reserves of capital.

The regulator said it must have more cash on hand in case of market shocks, like the financial crisis of 2008.

The Bank of England’s Prudential Regulation Authority (PRA) said Barclays needs in total an extra 12.8 billion pounds (14.75 billion euros) of capital, more than it estimated last month, and that it should fill the shortfall in the next year.

Barclays chief executive Antony Jenkins said he was reacting “quickly and decisively” to the PRA and that it was happy with his plan.

“I think they’ve done the right thing. Anything else would have been a fudge, they needed to get on and raise equity,” said Mike Trippitt, analyst at Numis Securities.

The rights issue will offer shareholders one new share for every four owned at 185 pence, in an offer that allows existing shareholders to buy discounted shares first to give them a chance to maintain their stake.

At the same time Barclays said it will take another two billion pounds charge (2.3 billion euros) to compensate customers to whom it mis-sold insurance products and for the mis-selling of complex interest rate hedging products to small firms.

The bank reported a pretax profit of 1.7 billion pounds (1.96 billion euros) for the six months ended June, almost double its 871 million pound profit a year ago. Its adjusted pretax profit was 3.6 billion pounds (4.15 billion euros).