After a lunch meeting with Barclays last week, Credit Suisse analysts have issued an outperform rating on the bank.
Jonathan Pierce at Credit Suisse reckons an £8bn capital raising may be necessary, with part of this coming from a sale of its iShares business. The latest suggestion doing the rounds (as Panmure analyst Sandy Chen referred to this morning) is that Barclays may fund up to 80% of the purchase price to get the deal done, but there appears to have been no mention of that at the Credit Suisse meeting. Pierce said:
"We had lunch with Barclays chief executive John Varley, finance director Chris Lucas and head of investor relations Stephen Jones on Friday. Overall, Barclays management continue to talk a good story but they face a number of key decisions in the coming weeks.
"Any decision on the APS [the UK government's asset protection scheme] is several weeks away. While the bank has submitted a sample £10bn portfolio(s) to the Treasury, HMT has been very tied up with Lloyds and Royal Bank of Scotland. Barclays still has "no line of sight" on terms it might offer. However, it doesn't believe APS has been particularly generous so far.
"Barclays didn't think that it was likely to be forced into the scheme either - indeed Alastair Darling told the Treasury Select Committee that the ball was in Barclays' court.
"From our perspective, we hope management seriously considers APS, not least for its toxic structured assets and in particular monoline exposures. While the bank clearly feels strongly about the quality of these - it highlighted that its CLO positions were strongly cashflow generative and far more diversified that other "toxic" structured assets - we can't see the market giving them the benefit of the doubt in the near-term.
"Barclays believes it has more than enough capital to run its current mix of businesses, but says there is an increasing correlation between total shareholder return and equity tier 1 ratios. As such, it feels it is right to consider a higher equity tier 1 ratio in the near term, irrespective of whether it goes into the APS or not. Hence the comments around iShares which it also said was increasingly non-core to BGI, something it had always thought would be the case once iShares got too big.
"While we don't think Barclays needs as much capital as [Lloyds and RBS] - as management says, large parts of their loans books are likely to perform a lot better - we feel around £8bn of additional equity capital would be helpful. This would take the ratio to over 8% excluding APS or over 7% with an APS of £80bn at 6% fee (our central case assumption).
"A sale of iShares would still leave a shortfall versus our £8bn capital calculation, but Barclays has had a good start to the year, particularly the first two weeks of January - not least due to strong flow and margins in Barclays Capital - and continued strength could assist the capital base further. In addition, management did not rule out Government B shares. They are obviously keen to avoid Government involvement but it sounds like any decision will depend on associated terms and conditions."
Barclays is currently 10.3p higher at 115.3p, helped by the continuing lift to the financial sector from the US government's toxic assets bailout proposals.
