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 it?
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%
Barclays AA Watch Negative 7.9%
HBOS A+ Watch Positive 7.3%
HSBC AA Stable 8.8%
Lloyds TSB AA Watch Negative 8.6%
RBS (Natwest) A+ Stable 6.7%
Nationwide BS A+ Stable 9.7%
Post Office (Bank of Ireland) A+ Stable 8.1%
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.