Barclays 'must raise £7bn in fresh capital'

By SIMON DUKE FOR MAILONLINE
Updated: 16:09 EST, 16 December 2010

Barclays will need to raise £7bn in fresh capital under a tough new framework designed to safeguard the global financial system according to a leading City analyst.

Arturo de Frias, of stockbroker Evolution, warned that Barclays’ loss-absorbing capital reserves won’t be big enough to comply with the new rules, which will force big banks to hold more cash on their balance sheets.

Under the Basel III rulebook published yesterday, banks will have to operate with a cash cushion – known as a Tier 1 capital ratio – of 7pc of the total loan book, which is dramatically higher than today.

But de Frias predicted that British watchdogs will impose a substantially higher standard on big UK banks with international operations and riskier investment banking wings.

The more stringent line likely to be adopted in the UK will leave Barclays (up 1.50p to 263.50p) in need of a £7bn cash injection, he argued.

Barclays, which declined to comment, is unlikely to be alone in needing to bolster its finances.

The Bank of International Settlements, which has drawn up the new framework, estimates that banks around the world would have had to raise an eye-watering £490bn had the rules come into force this year.

However, the BIS will gradually impose the higher capital standards over a number of years, which will allow banks to funnel a chunk of profits to their reserves.

They can also cut back on bonus payments and shareholders’ dividends to satisfy the new rules.

Experts fear the more rigorous approach, which effectively forces banks to hoard more of their revenues, could exacerbate the shortage of affordable loans for businesses and households.