Barclays has agreed deals to raise up to £7.3bn from overseas backers to bolster its battered balance sheet in a move that could leave control of up to one-third of the company in the hands of Middle East investors.
The bank has agreed a complex scheme under which it will raise capital from sources that include sovereign wealth funds and Sheikh Mansour Bin Zayed Al Nahyan, a billionaire member of the Abu Dhabi royal family who owns Manchester City football club.
The fundraising will mean that Barclays will not need to join rivals Royal Bank of Scotland, HBOS and Lloyds TSB, which are set to raise up to £37bn from the government to help them cope with turmoil in the world's financial markets and the prospect of an economic slowdown.
Marcus Agius, chairman of Barclays, said a key benefits of the scheme was that the bank would "be in charge of our own destiny".
Royal Bank and others will not be able to pay dividends for five years and have agreed to curb executive bonuses.
However, shares in Barclays plunged 13% yesterday when analysts said it appeared to have paid a high price for its freedom by offering its equity on generous terms. The bank also faced accusations that it was betraying UK taxpayers.
"This is a scandal of mammoth proportions. Here is a bank which relies on the taxpayer to bail it out if the going gets rough but which has offered Middle Eastern investors a much better deal than the banks are offering to the British taxpayer," said Vince Cable, Liberal Democrat Treasury spokesman.
"They don't want the British Government stopping them from paying massive bonuses to their executives. More than the other banks, Barclays operate a high-risk casino operation which makes the bank particularly unstable but which gives very rich pickings to the top executives."
In a trading update, Barclays provided further evidence that turmoil in credit markets has been taking a heavy toll on earnings.
While third-quarter pre-tax profits were "slightly ahead" of the previous year, the bank said it had recorded credit market write-downs of £1.2bn.
The scheme agreed by Barclays could result in the Qatar Investment Authority, the Challenger investment vehicle led by the Qatari royal family and Sheik Mansour Bin Zayed Al Nahyan owning almost a third of the bank.
Barclays will issue £3bn pounds of reserve capital instruments (RCIs), paying interest at 14% until June 2019 and the three-month Libor rate plus 13.4% thereafter.
Investors in the RCIs have subscribed for warrants to buy up to 1.5 billion new shares at 97.775p per share, £3bn in aggregate.
Banks that are issuing preference shares to the UK government will pay a coupon of 12%.
Unlike the dividends pay- able to the government the RCI coupon will be tax deductible, meaning the effective rate will be about 10%.
Barclays will also issue £4.3bn of mandatory convertible notes (MCNs).
Some £2.8bn of MCNs are being issued to Qatar and Sheik Mansour Bin Zayed Al Nahyan. A further £1.5bn are being offered to existing institutions and other investors.
All the MCNs will pay an annual coupon of 9.75%. They will be convertible into shares at 153.276 until the end of June 2009.
Barclays shares closed on Thursday at 205.25p.
Chief executive John Varley said: "There has been a signifi-cant shift in the availability of capital and economic power in the world over the last five years and we're ensuring we're aligned with those changes."
In the past two years Barclays has raised funds from investors in China, Singapore and Japan as well as the Middle East. The bank expects to benefit commercially from the links as well as getting cash.
Asked whether the deal would give Barclays enough capital to avoid more fundraising, Varley said: "Yes, we have what we need."
Barclays earlier this month turned down an offer of government funds and said it would raise capital privately.
Barclays said it planned to raise about £6.5bn, with £3bn from the sale of preference shares and the rest from selling ordinary shares.
It had until the end of March to raise funds.
Those sales were expected to increase the bank's core tier 1 capital ratio to about 8%, up from 6.3% after a £4.5bn fundraising in July.
The latest funds will lift its overall tier 1 ratio to 11.3% from 9.1% in July.
Analysts noted existing shareholders would be left with a much smaller share of Barclays. However, the bank said offering full pre-emption rights to shareholders would have taken too long and been too risky in current markets.
Barclays will pay fees of around £300m in connection with the deal.
The UK Shareholders' Association, which lobbies on behalf of private investors, criticised the government for apparently providing capital on harsher terms than other countries had applied to their bank recapitalisation programmes.
"It is likely that the dividend restriction will make it harder for the banks to raise further money themselves."
Referring to the proposed government backed takeover of HBOS by Lloyds TSB, the association said Lloyds TSB shareholders seemed to be being told "to take on HBOS or else".
Alex Potter, analyst at Collins Stewart, said: "self determination" was very valuable to Barclays but the cost of the new capital was commensurately high.
Shares in Barclays closed down 26.375p at 178.875p.
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