As the Guardian has noted:
Barclays was preparing the ground on Monday night for a major capital-raising exercise that is expected to include a potential cash call on shareholders of up to £5bn.
Now I'm not going to argue against re-capitalising banks. They clearly need to be more robust.
But I am going to argue that this may not be money well spent. The call for cash is not costless: some will, for example, come from your savings in all likelihood, even if they are of relatively modest amount. Few pension, life assurance or other structured funds will not invest in Barclays. And you will not see an increased return as a result of this money you will be contributing. It's a direct cost to you.
And it's a cost for a reason - which is that Barclays is not fit for purpose. Having sought to avoid state funding in 2008 Barclays has since been an example of capitalism gone wrong at almost level looked at, from tax abuse, to executive greed, to corruption, to market rigging, to over-exposure to inappropriate lending, to supporting tax havens. And still it can call for your money.
And my question is a simple one. It is, can we still afford Barclays? The obvious answer is we can't. No organisation guilty of its malpractice should survive. In the state sector it would not. So why do we tolerate it? And why can't we get rid of it?
Until capitalism can kill off that which corrodes it from within is capitalism worthy of being considered a viable economic system? Since palpably it cannot do that at present, and survival of the fittest is not now its function or purpose, but perpetuation of failure does instead appear to be its raison d'etre, why do we still tolerate it?
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You would have thought Barclays would have put this capital to work and earn a return on it. However, you say there is no additional return generated by them on the money. Is it in a interest free account?
The shareholder could also put the interest on deposit
It does not need Barclays to do that
So my comment is correct – and you are actually supporting it
Be interesting to see which companies they get to underwrite the rights issue and what discount to the current share price they have to offer them .
Do you think there is any chance of the Chancellor offering to underwrite this cash-raising with tax-payers money in the event of a short-fall ?
“Few pension, life assurance or other structured funds will not invest in Barclays”
Is that correct and if so why Richard ? Because they bought their holding before 2008 or another reason ?
On the face of it these businesses look like they should be listed at the scraggy end of AIM .
– exposure to chains of derivatives which is not properly quantifiable
– loans secured on assets which are set to fall in price
– not doing enough new lending business with SME’s . Essentially in run off .
The Govt set a precedent by bailing out bank shareholders and bond-holders back in 2008 and policy since has been geared to saving the banks whatever the cost to the real economy .
The tragedy is that the Westminster Set is misguidedly backing the wrong horse by trying to revive and sustain the dieing obese banking sector when they should be concentrating on re-balancing the economy as a matter of urgency to compensate .
All this “jewel in the crown” stuff betray’s their belief that banking is a driver of the economy rather than a facilitating service .
Most funds will hold Barclays because it is big in the FTSE 100
Fund managers are not imaginative
It was claimed by an interviewee on radio 4 this afternoon that there are very few places pension funds can put their money because they sums are so large. According to that person, if they did not put it in those few big companies they would end up owning a lot of smaller ones. I do not know if that is true.
I did have a look at Barclays’s accounts and I saw that they claim to provide a very large return on shares, if I read them right: something over 10%. Presumably they can only do that because of the criminal activity, but they are not paying anything like that on deposits. Which as to tell you something…..
Barclays has provided no such return – in fact in recent years the returns have been pretty low – below market rates which on shares do not reach 5%
As for where to put the money – it needs to be invested in new business – not the second hand shares of existing ones
We need to keep demolishing the myth of ‘bailed out’ and ‘non-bailed out’ banks. The people recently set up UKUncut food banks at branches of HSBC around the country; yet people still kept saying ‘but why are you picking on HSBC? They weren’t bailed out…’. My reply to them was ‘yes it was and still is being; it’s part of the banking SYSTEM. A system that was and still is being bailed out.’ That’s because all of the banks on the UK’s high streets owe their existence to public financing. According to the Bank of England, the British taxpayer provided more than £1.16 trillion of public money to rescue the banking system from collapse. Through short-term loans, loan guarantees and quantitative easing the Bank of England helped to bolster the balance sheets of banks. Banks such as HSBC therefore benefit from a promise that taxpayers will never let them fail, because it would be too damaging to the UK economy. Banks like HSBC are able to borrow at low market rates, hence low interest rates; they are able to do this because the market expects them to be bailed out in times of future crisis. This effectively means that a large chunk of taxpayer money is not spent on public services, but reserved for such an eventuality; that’s an implicit bail-out guarantee for such as HSBC. In fact, all banks are already receiving an upfront bail out with taxpayer subsidies to their mortgage operations in the form of Help to Buy. The LIBOR scandal showed the huge interconnectedness of banks, how they rig the market for each other; if one large bank had failed in 2008 it’s likely the entire banking system would have collapsed, taking HSBC and Barclays with it.
In fact, former Barclays boss, John Varley, had to acknowledge the crucial role played by the government and public in rescuing the City as a whole: ‘Even those banks who did not take capital from governments clearly benefited (and continue to benefit) from these actions. We are grateful for them, and our behaviour should acknowledge that benefit.’
This also means that bonuses paid to senior bank staff and dividends to institutional investors are, at least partly, paid for by the taxpayer. Stuart Gulliver, the new chief executive of HSBC, recently received a bonus of around £9million – which could pay for the annual salary of over 400 nurses.
So whilst they did not need a direct government injection of cash following the financial crisis in 2008, HSBC and Barclays – like all other high street banks- owe their survival to public financing. And now we also know WHY HSBC and Barclays didn’t need a direct injection; they’ve been indulging in criminal activity, like money laundering and market rigging and fraud. And they’re tax dodgers.
Want more evidence that we’re not ‘all in this together’? HSBC is one of the big banks that will avoid paying billions of pounds worth of tax on future profits by offsetting losses it suffered during the financial crisis against its tax bills. HSBC also managed to get the Chief Exec of HSBC at the time they were indulging in criminal activity, The Rev Stephen (Lord) Green, into government. As a Treasury minister. Advising George Osborne. On Banking.
Richard asks why Barclays is still in existence. David points out why, because it, like the rest of banking system, has been bailed out by society as a whole. Meanwhile, as Richard’s pointed out elsewhere, the private sector is already failing in the NHS.
How the hell can we stil keep on saying Britian isn’t corrupt? Maybe ordinary people here aren’t routinely paying/receiving bribes, but our so-called elite, in banking and politics, are morally and intellectually corrupt.
“HSBC also managed to get the Chief Exec of HSBC at the time they were indulging in criminal activity, The Rev Stephen (Lord) Green, into government. As a Treasury minister. Advising George Osborne. On Banking.” Exactly.
This is confusing. Is Barclay’s asking for 5bn from the government/taxpayer?
No
It is asking for £5bn from its shareholders because it has insufficient capital
My suggestion is that there would be better use of that capital by stopping Barclays undertaking many of its activities
Of course the only reason Barclays did not have to be directly bailed out is because of a controversial capital raising exercise with a Qatari sovereign wealth fund – which is now under scrutiny.
“So why do we tolerate it? And why can’t we get rid of it? “.
It is a PLC, so it is tolerated by the Law. It is a Bank, so it is tolerated by the various financial regulators who regulate it. No doubt the share issue will succeed, so it is tolerated by those shareholders who buy the shares. As a company, it employs thousands of people – so it is tolerated by its employees. As a business, it trades with its customers – tolerate might be the wrong word here, but you get the point.
That is a lot of tolerance to lose before it goes away, unless of course you are advocating a more subversive course of action?
It survives only because of public subsidy – as Alistair Turner has acknowledged
Any economic system only survives by consent
You seem to have missed that point
At least it isn’t as bad as some !
Yet:
http://www.zerohedge.com/news/2013-07-30/jpmorgan-7-billion-fines-just-past-two-years
Great minds think alike Richard?
Or:
Following in the steps of JPM:
“Even that was not enough as the sum to be raised is £5.8 billion or £5.95 billion after costs. So banking rule one: never release the full truth until you have to, has been at play here”
http://www.mindfulmoney.co.uk/wp/shaun-richards/barclays-bank-shows-us-that-the-uk-banking-sector-remains-in-crisis/
After Bob ‘I-knew-naffin’-guvnah’ Diamond was eventually surgically removed, he was replaced by bernard jenkin who presided over the PPI scandal – why there hasn’t been a mass exodus of depositors from this foul pit is beyond my comprehension – maybe it’s because we only have foul pits to choose from.