Thursday, May 15, 2008

Never say never

The UK banking system is scambling for capital. Today, Barclays bank signaled to the market that it may have to raise more money to cover its growing pile of losses. Chris Lucas, Barclays finance director, said: "We’re not going to rule in or rule out any option at this stage."

Barclays better move quickly. Markets tend to be fickle, and will soon become bored, as one failing bank after another looks for more money through issuing new shares.

Barclays do need the cash; they have just written down £1.7 billon due to sub prime and other bad investments. Furthermore, their tier 1 capital adequacy ratio has fallen to just 5.1 per cent. If the ratio falls further, the Bank might find itself receiving unwelcome attention from the regulator.


  1. Barclays and RBS had the thinnest capital reserves of the UK banking sector.

    It is worth noting too that Barcap (Barclays Capital Management) - the investment banking arm of Barclays - has been expanding at an impressive rate in recent years. Until recently (maybe still) it proudly boasted that it was the fastest growing investment bank. I don't remember any caveats.

  2. Are the UK banks running Basel I or II these days?

    My guess is they're running BII, Pillar 2.

    This Tier 1 capital thing tends to be sensitive to that stuff.

  3. steve. Until recently Northern Rock proudly boasted that it was the fastest growing retail bank.

    Do you think there's a connection between fast growth not based on an increased customer deposit base, and liquidity troubles when the wholesale market shuts down.

    Hmmmn. I wonder.