Introduction
Barclays Bank is a universal bank operating in more than 50 countries. In 2008, when the credit markets were tightening and a global slowdown looked increasing inevitable, the UK government was raising require Tier 1 capital ratio to 9% from 8%. The existing shareholders are unlikely able to provide the funding to meet the demands. There seems two ways for Barclays to raise capital. One is to accept the investment from UK government and the other way is to make deal with QIA (Qatari investment authority). Either of two offers needs the approval of the three-quarters of its shareholders approval. Whether accepting the government is better than accepting the Middle Eastern offer is the questions now faced by the bank.
Analysis of accepting government investment
To accept the investment from the government can allow Barclays Bank immediate access to the capital it required with less commissions and fees. Dealing with the government has less management risk and the dealing process can be supervised well. This can reduce the risk to take the illegal action that may make troubles in the later time. But the terms offered by the government include many constraints. These constraints will affect the benefits of shareholders by not paying the dividends until the government’s preferences shares had been redeemed and diluting the value of share price. And the government appointed three new independent directors, which increase regulatory in Barclays Bank. The intervention of government in managing the bank business may influence the usual operation and set some rules which does not benefits the banks interests. And the bank runs the tax arbitrage, which enables to avoid the payment of UK tax. Although it is not illegal but the intervention of government may curtail the activities and affect the bank’s profitability.
Analysis of accepting Middle Eastern