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Barclays launches rights issue as mortgage lending falls in H1

by: Adam Williams, Dan Jones
  • 30/07/2013
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Barclays launches rights issue as mortgage lending falls in H1
Barclays has announced a rights issue worth £5.8bn in order to fill its capital shortfall, the bank’s half year results have confirmed.

The lender has made the move following the Prudential Regulation Authority’s directive that five major high street banks and building societies, including Barclays, needed to hold more capital.

As part of its capital raising plans the bank will issue £2bn of convertible debt and shrink its balance sheet in a bid to close a funding gap of some £12.8bn, it said.

However, the number of mortgage accounts held by the bank increased to 983,000 in the first half of the year, driven by the acquisition of ING Direct’s UK operations.

It said it had made a £25m gain on the purchase of ING, now known internally as Barclays Direct. Mortgage balances ended the first half of the year at £121.7bn, up from £114.7bn at the same point in 2012.

Gross mortgage lending was marginally down compared to the first half of last year, falling to £7.7bn, while the average LTV on its mortgage portfolio stood at 45%.

Interest-only loans make up £53bn of the lender’s total home loans portfolio of which £46bn were residential loans and £7bn buy-to-let.

Earlier this year Mortgage Solutions reported on Barclays’ decision to reduce flexibility on a number of its mortgages by withdrawing its overdraft facility for new customers. Its statement today said that 611,000 of its existing residential customers still had access to the facility and had currently drawn down around £5.8bn.

Overall, Barclays reported a 17% drop in H1 pre-tax profit to £3.59bn, prompted by £640m in costs as a result of its ‘Transform’ restructuring programme.

It added that provisions for payment protection insurance (PPI) redress (£1.35bn) and interest rate swap mis-selling (£650m) had risen by a further £2bn, far higher than expected.

That takes total PPI provisions to £4bn and total swaps provisions to over £1bn. Barclays shares slumped 5% to 293p this morning as the plans were revealed.

Barclays chair Sir David Walker said the rights issue will allow the bank to increase its dividend payout ratio ahead of original targets.

“The board and I are aware of the implications of a rights issue for shareholders. We hope to balance this with reduced uncertainty in the outlook for Barclays and with enhancement of our dividend payout from 2014,” added chief executive Antony Jenkins.

In a statement, the regulator said it welcomed Barclays’ ‘credible’ proposals to bolster capital.

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