Saturday, May 30, 2009

Barclays' cost of freedom

In late 2008 Barclays Bank raised some expensive capital (see story). That was the cost of avoiding nationalization by the UK government. £7.3 billion was the total capital raise with £4.3 billion in mandatory convertible notes.

The notes have to be converted before the end of June-09, creating a 10% dilution at 153 pp - about half the current level. Imagine an announcement that a company is about to issue 10% of additional shares at a 50% discount to market. Sounds like a signal to sell. The market seems to be ignoring it.

Barclays share price

The rest of the capital raise is quite expensive. £3 billion of 14% coupon notes going out to JUNE 2019 plus warrants. In total the new (mostly Middle East) investors will have an almost 32% stake in Barclays. It's amazing what it took to stay private in that dark October.

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