Introduction
In the time of 2008 Global Financial Crises, Barclays Bank is fourth-largest bank in the world, and second-largest bank in the United Kingdom, which has more than 300 years history. The GFC brought limited impact on Barclays’ operation in the crisis early stage. However, few month later (in September 2008), with the crisis spread all over the world, investors lose their confidence on financial institutions. The share price of Barclays dropped more than 40% in only one month. And even worse, now UK Government was raising the required Tier 1 ratio (from 9% to 11%) in order to protect stability of UK financial market. Barclays have to fund at least ￡6.5 from outside capital to meet the requirement. UK Government and Middle Eastern offered their investment plan on Barclays in the same time. Barclays should consider which one is more acceptable.
Quantitative Analysis of Offers a. Government offer
Base on the offer, Government would purchase all new issued Barclays preference shares that worth ￡3 billion. In returns Government could receive 12% of the principal annually, which equals to 360 million. And after 2013, the interest rate switch to LIBOR+7%, the amount predicated as 397 million per year. In addition, Barclays have to cost 60 million in preference shares issuing (Appendix 1).
Moreover, Barclays have to issue ￡4 billion in ordinary shares, which would cost 20 million. According to similar offer of RBS and LLOYDS, Government agree to purchase those shares at discount 8% of the recent closing share price. This discount would result in Barclays loss almost 347.83 million (Appendix 1).
If Barclays accepted the Government offer, Barclays would cost 787,826,086.96 in the first year. And then, pay the interest 360 million p.a. before 2013. Thereafter, interests are predicted as 397,500,000 p.a. b. Middle Eastern Offer
Based on the offer,