Barclays plc Ordinary 25p (BARC)

Company overview

The Group's principal activity is the provision of financial services engaged in retail and commercial banking, credit cards, investment banking and wealth management services. Barclaycard has 11.2 million retail customers, with 2.9 million cards issued internationally.The group operates in over 60 countries with a liitle over 78,000 permanent employees.

HL Update (18 July 2008)

A significant fund raising exercise has now been put to bed, with the group successfully raising £4.5 billion in order to bolster its capital adequacy levels. However, with bank shares remaining under pressure - underlined by difficulties in the North American mortgage market and concerns for the health of mortgage agencies Fannie Mae and Freddie Mac – Barclays’ shares have spent much of the time following the open offer announcement below the 282 pence take-up price. As such, less than one fifth of qualifying shareholders (19pc) have decided to buy new shares. The remaining 1.14 billion shares have been allocated to a series of institutional investors, including Qatar Investment Authority, Challenger, China Development Bank, Temasek and Sumitomo Mitsui Banking Corporation.

On the positive, and ahead of coming half year results (expected 07Aug08), the group’s financial cushion has been strengthened and there is even the possibility some element of funds could be used to make an acquisition. On the negative, falling property prices, particularly in the USA, continue to overshadow credit market related investments held and recent additional write-downs by the likes of US investment bank Merrill Lynch continue to provide concern that difficulties could still be experienced elsewhere in the global banking sector. On balance, market consensus opinion remains neutral in tone.

HL Comment (25 June 2008)

In 2007, Barclays again attempted to significantly add to its international business portfolio, via a takeover of Dutch based banking giant ABN Amro. However, the situation was complicated by a rival bid coming from a consortium led by the Royal Bank of Scotland. Despite selling significant share stakes in the bank to Asian Sovereign Wealth funds (Temasek - the state-owned Singaporean investment company and China Development Bank), Barclays lost the contest, an outcome which its shareholders may have subsequently cheered, thanks to global turmoil in the banking sector caused as a result of an unfolding credit crisis.

The group’s full year results back in mid February, saw Barclays, like so many of its rivals, being forced to mark down the value of credit market related investments, as difficulties in the US housing market took their toll. Since then, although management have insisted that trading remains relatively strong, investor concern in relation to the group’s financial cushion (capital reserve) has continued to overshadow the shares. Now, and in the wake of volatile rights issues from rivals such as Royal Bank of Scotland and HBOS, Barclays has finally relented. However, whilst new funds are to be raised - £4.5 billion to be precise – the mechanism of a rights issue is being bypassed in favour of a share placing and accompanying open offer. New institutional shareholders such as Sumitomo Mitsui Banking Corporation and the Qatar Investment Authority are taking significant stakes, whilst existing shareholders Temasek and the China Development Bank are also topping up their holdings. Other shareholders (including retail investors) are being invited to subscribe for new shares via the open offer – the terms of which are 3 new shares for every 14 shares held at a price of 282p.

Negative investor concerns currently focus on the possibility of further investment write-downs, should property markets remain under pressure, and the dilutive effect to earnings which a substantial issue of new shares has on earnings. Furthermore, the group’s investment banking division has been a big driver of group profits in recent years, raising concerns as to where future momentum will come from, given currently depressed credit and equity markets. On the positive, the injection of funds (£4.5 billion) should help to put funding concerns behind the bank, the option of a cash dividend is being retained as opposed to the position at RBS and HBOS, and management continue to describe current trading as ‘resilient’. In addition, the level of new funds currently provides some scope to finance potential expansion possibilities. On balance, market consensus opinion is neutral in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

* Prior to 31st December 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).