I spent a lot of time talking about Barclays Bank yesterday, and the
fact that they have not taken the government’s offer of
recapitalisation support, unlike RBS, HBOS and Lloyds TSB. This is an
unusual move, and everyone wondered what trick they held up their
sleeve. Obviously they needed capital, but where were they going to get
Answer: Qatar and Abu Dhabi.
Today, Barclays Bank announced they were raising £7.3 billion (around
$10 billion) in new funds, of which £5.8 billion will come from
investors in Qatar and Abu Dhabi in return for a 30% stake in the bank.
I do find this intriguing, particularly the question as to why the
other banks don't get Sovereign Wealth Fund (SWF) investments of this
nature? Sure, there are a few that have, such as Citibank, but UK
banks have generally relied on Government support rather than SWFs.
Apart from Barclays.
Maybe it's related to Barclays Capital and Barclays Global Investors.
The relationships with global investors and SWFs through those two
units is certainly stronger than the other UK banks. For example, in
the fund raising rounds for new investment earlier this year,
RBS and HBOS raised capital through shareholders whilst Barclays raised
capital through SWFs in China and Singapore. This time around, the
same connections with global investors has worked in their favour.
I found it interesting to read the public's comments on
this move as well, such as: “so Barclays is now in favour of
nationalisation – just as long as it's a foreign government that owns
it”. The reason Barclays didn't take the UK Government funding in my
view, is that the UK Government places all sorts of caveats and
requirements on the banks if they take the investment funds. These
include things like: "your Chief Executive and Chairman have to step
down" … SWFs tend not to influence the bank as much.
Meanwhile, whilst reading this news, the Times ran a headline: “How to judge the safety of a bank”, which surprised me as it’s a question that would never have been asked a year or so ago.
The article related to the bailout the UK Government has given to the
banking industry and the loss of confidence as a result of the
Icelandic banks failing, Bradford & Bingley and Northern Rock being
nationalised, and the forced merger of HBOS with Lloyds TSB.
It goes on to say the answer to how judge the safety of a bank is to use the ratings agencies!
OK, it does qualify that statement to say that you should use them with
other sources, such as Tier 1 Capital ratios, and then provides the
listings for major banks in the UK, as at 17th October:
Credit rating Outlook Tier 1 Capital ratio
Santander (Abbey, A&L) AA Stable 9.25%
AA Watch Negative 7.9%
A+ Watch Positive 7.3%
AA Stable 8.8%
TSB AA Watch Negative 8.6%
(Natwest) A+ Stable 6.7%
A+ Stable 9.7%
Post Office (Bank of Ireland) A+ Stable
ING AA Stable 8%**
First Bank of Nigeria BB - Stable 17.4%
ICICI BBB -* Stable 11.29%
Source: Standard & Poor's/company accounts
**Tier 1 Capital Ratio following the €10 billion cash injection by the Dutch Government
Fact is that Barclays is rated to be a safe investment for the SWFs, so it’s a good deal.