Fund manager confidence remains in Barclays

Managers were last week backing Barclays to rebuild its battered reputation, after its shares dipped in value following a bigger-than-expected programme of capital raising.

In its half-year results published on July 30 the FTSE 100 listed bank announced a £5.8bn package of equity and bond issuance to take place in September, confirming media speculation.

The news sent its share price down almost 10 per cent between Monday morning and the close of trading on Wednesday. The rights issue was prompted by talks with the Prudential Regulatory Authority about how much capital the bank should hold in reserve.

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But managers said Barclays’ recovery was still on track even though the market had not priced as high a figure as was announced.

Alex Wright, manager of the £615.9m Fidelity Special Values investment trust, said the share price fall was a buying opportunity. “The market and regulator’s view on Barclays’ capital position always created a degree of uncertainty in the stock,” he said.

“The fact that the rights issue is larger than expected is not a significant negative in my view. At this point, it is appropriate for Barclays to err on the side of caution and ensure their balance sheet comfortably meets the regulator’s expectations.”

Steve Davies, manager of the Jupiter Undervalued Assets fund, said Barclays was “a self-help story” and cited the bank’s increase in its payout ratio as a positive boost for investors.

But other managers were more sceptical. Richard Marwood, manager of Axa Investment Managers’ Distribution funds, said the timing was “peculiar” as Barclays is not planning to contact investors until the end of August. He said it a clash with the government’s planned sale of its Lloyds stake and Royal Mail’s planned privatisation, which could stretch investor demand.

Chris White, head of UK equities at Premier Asset Management: “I would want to see significant progress being made towards Barclays beating its cost of equity. That could mean shrinking the investment banking business.”

A busy week for UK banks

Lloyds Banking Group

The government edged closer to selling its stake in the £52bn bank after Lloyds posted a £2.1bn profit for the first half of the year, compared with a loss of £456m in the first half of 2012. Its share price rallied and was last week comfortably higher than when the government bailed it out in 2008.

Jupiter’s Steve Davies described the intention to resume dividends as “the final stage on its journey back to pre-crisis normality”.

Royal Bank of Scotland

In contrast, RBS’s share price fell on Friday in spite of the group posting a £1.4bn profit in the first half of the year. However, investors had reacted positively on Thursday to the news that Ross McEwan, its head of retail banking, was to succeed Stephen Hester as the bank’s chief executive.

The bank’s shares remain at less than a quarter of their price five years ago and have slipped 4.8 per cent so far this year.