(B)(N) BCS Barclays PLC ADS

Deal Book. Barclays PLC is a bank that traces its roots to gold-smithing in the 17th century but was founded in its modern form in 1896. Apart from that, its track record in the last decade suggests that it should not have anything to do with “investments” – for which it is famously scandal prone – and should focus instead on providing a serviceable banking service to its many ordinary banking clients. Which it seems to be doing under its new management and “The Go To Bank” campaign (Daily Mail Online, August 2, 2013, INVESTMENT EXTRA: Rights and wrongs of a Barclays share issue).

Courtesy: Barclays PLC

However, the bank’s capital is down by more than 10% since last year and the British banking regulatory authorities, which are now answerable to the Bank of England through its Financial Policy Committee (FPC), have required that the bank raise its current capital level by 12% from the current $77 billion to at least $85 billion and, so, the bank is planning a “rights issue”, announced in July and possibly as soon as next week, in which four bank shares entitle the shareholder to buy one new bank share at a substantial discount to the market price.

The details are in pence and the cost of the new share has been fixed at 185p which ramps up to four ADRs (each ADR representing four bank ordinary shares) will be able to acquire one new ADR for US$12.06 at the current exchange rate of 780p equal to US$12.06 whereas the ADR closed yesterday at $17.50 and has traded between $12 and $20 in the last year (please see Exhibit 1 below).

If all the rights are exercised on the current 12.9 billion ordinary shares now outstanding, then 3.22 billion new shares will be sold to raise $9.7 billion for the bank’s treasury and the number of shares outstanding will increase by 25% to 16.1 billion. Sharpening our pencils, we also note that call options on the ADR at $12 are currently in-the-money and can be bought or sold for $7.10 per share (if someone would deal with us) which means that for every four hundred shares of the ADR that we own, we can buy 100 new shares for $1,206 and sell a call option for $710, which puts the “worth” of the rights offering at $19.16 per ADR share (but only for one share in every four that we own) although we would also expect that the price of the option will go down because of the stock dilution (which could be offset by an increase in the implied volatility of the lower priced shares).

The bank is currently trading above the price of risk at Risk Price (SF) $16 and our estimate of the downside volatility that we might expect during the next three months is minus ($2.50) per share. The bank is also expected to pay dividends this year of $800 million for a current yield of 1.4%.

Exhibit 1: (B)(N) BCS Barclays PLC ADS – Risk Price Chart

(B)(N) BCS Barclays PLC ADS

Barclays PLC is a financial services provider. It offers retail banking, credit cards, corporate and investment banking, and wealth management with an extensive international presence.

(Please Click on the Chart to make it larger if required.)

From the Company: Barclays PLC provides various financial products and services worldwide. The company operates in UK Retail and Business Banking, Europe Retail and Business Banking, Africa Retail and Business Banking, Barclaycard, Investment Bank, Corporate Banking, and Wealth and Investment Management groups. It offers current accounts, savings products, Woolwich branded mortgages, unsecured loans, general insurance, and banking and money transmission services to small and medium sized businesses; investment and insurance products, and business lending services; and retail, corporate, and credit card services. The company also offers international payments services for individual and business customers, including credit cards and consumer lending; investment banking services comprising strategic advisory, financing, and risk management services to large corporate, government, and institutional clients; integrated corporate banking solutions, including cash management services to corporates, financial institutions, and multinationals; and a range of wealth management services, such as international and private banking, investment management, fiduciary, and brokerage services. Barclays PLC was founded in 1896, has 140,000 employees, and is headquartered in London, the United Kingdom.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.