Barclays plans to raise 5.8 billion pounds ($8.9 billion) from its shareholders to address calls from Britain's financial regulator for the 320-year-old bank to strengthen its capital reserves against potential market shocks.
The Bank of England's Prudential Regulation Authority (PRA) said on Tuesday Barclays needed an extra 12.8 billion pounds ($19.7 billion) of capital, more than it estimated last month, and that it should fill the shortfall in the next year.
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Barclays announced the fundraising alongside news that it would take another 2 billion pounds charge for mis-selling products and said it was also pushing back its target to deliver a key profitability goal.
Banks across Europe are battling to meet tougher regulations aimed at preventing a repeat of the financial crisis, and many are also struggling to move on from past misdeeds. Deutsche Bank , for example, missed second-quarter profit forecasts on Tuesday, hit by higher legal costs.
Barclays chief executive Antony Jenkins said he was reacting "quickly and decisively" to the PRA and that it was happy with his plan, which also includes selling 2 billion pounds of bonds that convert into equity or are wiped out if the bank hits trouble, and shrinking loans a further 65-80 billion pounds.
"I think they've done the right thing. Anything else would have been a fudge, they needed to get on and raise equity," said Mike Trippitt, analyst at Numis Securities. He said earlier this month Barclays could need 6-12 billion pounds of capital, which did not include the extra mis-selling provision.
However, investors said Barclays' move could dent the British government's plans to start selling its shares in Lloyds Banking Group later this year, by sucking up market demand for bank stock.
The rights issue will offer shareholders one new share for every four owned at 185 pence, in an offer that allows existing shareholders to buy discounted shares first to give them a chance to maintain their stake.
At 0830 GMT, Barclays shares were down 4.6 percent at 294.8 pence, the weakest performance in the European bank index .
Regulators in Britain, Switzerland, the United States and elsewhere have been increasing scrutiny on leverage ratios, which do not rely on banks' own risk assessments but express a bank's capital as a proportion of its overall assets.
Barclays said the PRA had estimated its leverage ratio at 2.2 percent at the end of June, lower than the 2.5 percent it had estimated last month.
"As a consequence of the PRA's review we have had to modify our capital plans, in order to meet the 3 percent leverage ratio target by June 2014," Jenkins said, referring to a key PRA goal.
Barclays said it was pushing back its target to deliver a return on equity above its cost of equity - previously 11.5 percent - to 2016, a year later than Jenkins set out in a far-reaching restructuring unveiled in February.
But it bumped up its dividend payout expectations, saying it expected to distribute 40-50 percent of earnings in 2014 compared with the 30 percent previously predicted.
Barclays set aside another 1.35 billion pounds in its first-half results to compensate customers for mis-sold payment protection insurance (PPI), taking its total provision for that to 4 billion pounds.
British banks have now set aside more than 15 billion pounds to cover PPI compensation, and Barclays' latest move signals rivals may also have to bump up their provisions.
Barclays also set aside a further 650 million pounds for the mis-selling of complex interest rate hedging products to small firms.
The bank reported a pretax profit of 1.7 billion pounds for the six months ended June, almost double its 871 million pound profit a year ago. Its adjusted pretax profit was 3.6 billion pounds, just below the average forecast of 3.7 billion pounds from 22 analysts polled by the company.
It said it was "cautious" on the outlook and operating environment and that it would accelerate its plan to cut costs. Jenkins' restructuring plan absorbed 640 million pounds of costs in the first half.
Barclays will pay about 130 million pounds in fees and commission on the rights issue. It will be launched in September, and new shares are expected to be issued on Oct. 3, or possibly Nov. 7. The shares have been priced at a 40 percent discount to Monday's closing price.
($1 = 0.6515 British pounds) (Editing by Mark Potter)