Barclays need to raise six billion pounds fast

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They are putting on a brave face, but the extent of Barclays Bank's problems are now all too apparent to shareholders. From their point of view, the malaise is costing £6 billion, although the full extent of the bank's capital shortfall, according to the Bank of England, is £12.8 billion. The bank needs to raise cash quickly in order to conform to new requirements for financial health, known as the leverage ratio.

A rights issue, essentially selling new shares in the bank to existing shareholders, will take place in September to raise the £6 billion. The bank is struggling to get on top of liabilities incurred by mis-selling financial products. A new management team has admitted that Barclays had to increase its provision in this sector by £2 billion.

Antony Jenkins, who became chief executive after Barclays was exposed as being closely involved in the Libor-rigging scandal, is the man entrusted with extricating the bank from the latest mess. "Barclays should respond quickly and decisively to meet this new target. We have developed a bold and balanced plan to do so," Jenkins said.

The leverage ratio is an attempt to force banks into self-regulation and to maintain healthy capital reserves before they tip into the danger areas where the kinds of taxpayer bailouts that saved RBS become a possibility.

Barclays has been severely damaged by its own actions, notably Libor rigging and payment protection insurance mis-selling. Jenkins admitted that the initial cash call was tough for shareholders but argued that it would make the bank more secure and a more valuable investment in the long run. He said it would not affect the bank's mortgage lending.

The Bank of England's figure for the under-capitalisation was an alarming revelation for the City, where a figure of around half that amount was expected. Barclays shares dropped six percent after the bank broke the news of the rights issue.

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