Barclays (BCS)

Slowing BGI/BarCap Profit Growth: Although Barclays Global Investors and Barclays Capital have exhibited profit growth year on year, both fell short of their forecast revenue for the first quarter of 2007.

BCS's incoming chief executive Bob Diamond is considering selling large parts of the group's business as part of an extensive strategic review. A four-man executive team has been formed to examine 50 to 60 of the bank's key businesses and measure the levels of return they can be expected. Businesses with lower returns would be sold. In the long run, this divestment strategy could benefit the firm, but the fact that this strategy must be implemented shows that currently many of BCS's businesses are performing poorly.

President Obama's plan to restrict the activities of commercial banks, specifically outlawing proprietary trading and preventing commercial banks and institutions that own banks from owning, investing in or sponsoring private equity and hedge funds as well as limiting the size of banks could lead to a wave of similar banking reform in other countries such as the UK. If such restrictions were to be imposed in the UK, they would have a significant negative impact on Barclay's future revenues and growth potential.

Struggling Consumer Credit Segment: Due to a dismal credit environment within the UK and abroad, Barclaycard has exhibited unsecured losses as members have increasingly defaulted on their consumer credit lines.

Poor Mortgage Market Performance: The poor performance of the US mortgage market, particularly sub-prime and alternative mortgage products, could potential spoil earnings for US bound securities within Barclays Capital and Barclays Wealth segment portfolios.

Barclays said on Monday ( June 16th) that it was “actively considering” the sale of new shares to raise capital to better cope with first-quarter write-downs of £1.7 billion, or $3.35 billion, as a result of the tight credit market. An investment by Sumitomo would also allow the two banks to cooperate more closely in Asia, said the person, who declined to be identified because the talks are not public. But some analysts said the British bank would need at least £4 billion to weather the difficult credit markets.

“The Sumitomo investment would not be enough,” an analyst at Dresdner Kleinwort in London, Arturo de Frias, said. “I’m a bit surprised that they haven’t made a rights issue yet because the longer they wait the lower the rights issue will be.”

Barclays has so far refrained from following British rivals in tapping existing shareholders for capital. But rights issues announced recently by HBOS, Royal Bank of Scotland and Bradford & Bingley all faced challenges when the banks’ share prices dropped sharply ahead of the planned sales. Bradford & Bingley was even forced to cut the price of the new shares it offered and the volatile prices prompted Britain’s financial regulator to announce new rules for short-selling stocks.

Follow Up - Larger Than Expected funding June 25th announcement

Barclays has said it is planning to raise £4.5bn ($8.8bn) in a share issue to bolster its balance sheet.

The firm is to sell shares to new investors, such as the Qatar Investment Authority, and existing shareholders including China Development Bank.

Barclays said the fundraising move would "strengthen its capital base".

It is the latest British bank, following the Royal Bank of Scotland and HBOS, to seek to raise money to ease the impact of the credit crunch.

Barclays shares rose more than 6% on Wednesday in reaction to the fundraising move.

New investors

The Qatar Investment Authority, the state-owned investment arm of the Gulf state, will invest £1.7bn in Barclays, giving it a 7.7% share in the business.