Barclays will this week say how it plans to meet tougher U.K. rules on capital. The bank, which publishes results on Tuesday, is expected to set out plans either to sell bonds that are wiped out if it hits trouble or to raise equity to meet the U.K. rules.
The bank is seeking about seven billion pounds ($10.8 billion) to lift its leverage ratio to a three percent minimum demanded by the Bank of England from an estimated 2.5%, which includes future losses from mis-selling and bad loans. Regulators are following banks leverage ratios – that measure a banks assets against its equity. This is an extremely important indicator of bank stability, as banks in Europe and US are forced to comply with the minimum level of the leverage ratio to prevent a future bailout.
Barclays has already said it plans to issue more capital that could convert into shares or be wiped out if its capital ratios fall below a certain level.
The bank has to make sure any bonds it sells would help its leverage ratio under the U.K. rules. To do this, the bonds would have to count towards Tier 1 capital, the key measure of a banks financial strength. It will depend on how much time the bank is given. The regulator is expected to give the bank until the end of 2014, but a tighter deadline could force the bank to raise equity.
Barclays and other U.K. banks are also expected to lose hundreds of millions of pounds more for mis-selling of financial products, including payment protection insurance, an industry source familiar with the matter said. U.K. banks have already set aside more than 14 billion pounds for PPI (Payment Prostection Insurance) compensation. AS they did not add to that in the first quarter, it could be suggested payouts had peaked. Barclays has set aside 2.6 billion pounds for PPI costs and 850 million interest rate hedging compensation, and both of those could rise.
Barclays is capable to set aside 600-800 million pounds more for PPI, the Sunday Telegraph reported. Barclays is expected to make a profit of about 3.7 billion pounds for the first six months of the year, up from 759 million a year ago, according to the average of 22 analysts polled by the bank.
Barclays Plc share price slumped 3.47% on today as one year return has gained 90%.
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