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Barclays' £7bn fundraising was in the balance last night after an attempt by the board of the high street bank to appease its shareholders appeared to have failed to win over powerful City investors.
The Association of British Insurers, whose members control a fifth of the stockmarket, warned of "grave concerns" about the fundraising plan despite the bank's pledge that its directors would waive their 2008 bonuses. Its rare "red-top" alert may encourage investors to vote against the proposal. The board, chaired by Marcus Agius, also promised that every member would stand for re-election at next year's annual meeting, in a move seen as a "back us or sack us" plea to shareholders furious at its plan to raise £5.8bn from Middle Eastern investors.
Barclays also promised to offer existing shareholders the chance to participate in the fundraising exercise by convincing the Middle Eastern investors providing most of the new funds to give up £500m of the planned investment.
This is the bank's attempt to address the issue of pre-emption rights, where existing shareholders would expect to be offered new shares before any new investor, at the heart of the current row.
Barclays needs the support of 75% of the shareholders who vote at Monday's extraordinary meeting for the fundraising, which rises to £10bn if warrants issued to the Middle Eastern investors are included. Legal & General and Aviva are said to be considering voting against and between them own 6% of the shares.
Analysts at Exane BNP Paribas asked if the changes offered by Barclays were "too little, too late". They noted "the temptation to vote down the proposals is strong". However, they admitted that share-holders may be left with little choice other than to back the fundraising because if they failed to do so Barclays may be forced to turn to the British government's bail-out, which would mean the terms could be even more expensive than those being paid to the Middle Eastern investors.
The bank's board hoped to quash any suggestion that it had only refused the taxpayer bail-out so it could keep paying bonuses - banned under the terms of the government financing - to its executives, particularly Bob Diamond, the president and highest-earning member of the board, who took home £36m last year.
Diamond will now take his basic salary of £250,000. The other executive board members - John Varley, chief executive; the finance director, Chris Lucas, and the executive director, Frits Seegers - will also refuse any bonus. Shareholders pointed out that it was far from clear they would have received bonuses anyway, given the fall in the share price, even though the bank aims to be profitable. The shares are trading at a 13-year low and closed last night 3% down at 149.5p.
Barclays made the changes after meetings with the bank's largest shareholders. It insisted the discussions had been "constructive" and that it had "listened carefully to shareholders' views".
One of those meetings took place at the ABI last Friday, but Barclays failed to convince the shareholder body to give the fundraising the all-clear. Yesterday the ABI raised its level of concern from an "amber top" to its most serious, a rarely issued "red top". Peter Montagnon, the ABI's director of investment affairs, said the changes "cannot offset the concern of shareholders at the serious breach of the pre-emption principle, especially on an issue with a large discount. Other concerns include the preferential terms to some investors, and the cost of the issue to existing shareholders. After careful consideration we therefore felt we had no choice but to proceed with a red top."
The red top is not advice to vote against the fundraising but to indicate issues of grave concerns. "Shareholders will have to weigh up all relevant factors, including the consequences of rejection for Barclays and the wider banking system. The board should not therefore assume that votes in favour of the proposal constitute support for the way it has approached the issue," said Montagnon. "The red top establishes a firm basis of principle for further dialogue with Barclays and other companies."
Barclays has argued that by raising cash from the Qatar Investment Authority and Sheikh Mansour bin Zayed al-Nahyan it could avoid the restrictions the government had originally appeared to impose on RBS, HBOS and Lloyds TSB over dividends and lending policy.
In a letter to shareholders, Agius insisted that the bank was "fully committed" to the principle of pre-emption rights but felt that the unprecedented market conditions had encouraged its decision to offer the new shares to Middle Eastern investors.
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