Barclays raises $12 billion, sources say CoBa may tap state

A Barclays sign is seen outside a branch of Barclays Bank in central London, May 15, 2008.

LONDON/FRANKFURT (Reuters) - Barclays tapped Middle East investors for the bulk of its 7.3 billion pounds ($12.1 billion) cash injection, while sources familiar with the situation said Commerzbank is interested in German state funds.

As banks continue to soak up capital to help them survive the global financial crisis, Britain's Barclays Plc tapped Abu Dhabi and Qatar to provide most of its fresh cash and avoid accepting government support.

By contrast Germany's Commerzbank AG is interested in a capital injection under the Government's emergency bailout scheme, which could lead to Germany taking a stake in the country's second-biggest bank, sources said.

"Commerzbank is interested in all the instruments that the fund is offering -- also on recapitalization," said one source.

Barclays said its fundraising through a range of capital instruments will allow it to rebuild capital to levels required by the UK regulator without taking taxpayer cash.

Barclays Chairman Marcus Agius said this approach would allow the bank to be in charge of its own destiny without the threat of government interference.

Commerzbank is also grappling with the fallout from the global crisis which spurred the German government to launch an emergency fund offering guarantees and capital to the country's banks.

Exposure to investments in Iceland as well as to collapsed Wall Street investment bank Lehman Brothers are compounding Commerzbank's difficulties, said one of the sources.

"The third quarter was hit by exposure to Iceland and Lehman Brothers," said the source. "That's another reason that the bank must keep a close eye on its capital base."

Commerzbank shares were down 8.4 percent at 8.235 euros by 1411 GMT while Barclays stock was down 17.1 percent at 169.8 pence.

Analysts said there was concern Barclays' fundraising is more costly than cash on offer from the British government in its equivalent bank bailout plan.

COST OF MONEY

An issue of reserve capital instruments (RCIs) will pay annual interest of 14 percent until June 2019. Warrants for shares worth another 3 billion pounds could also be issued.

"Barclays has managed to avoid the constraint on dividends and general government interference which comes with the government scheme, but at a price," said Bruno Paulson, bank analyst at brokerage Bernstein.

Barclays said the coupon on the RCIs is tax deductable and after tax it will cost approximately 10 percent. After adding in the value of the warrants, the cost should be similar to preference shares other banks are expected to issue, it said.

Britain's second biggest bank is raising up to 3.5 billion pounds from Sheikh Mansour Bin Zayed Al Nahyan, one of the brothers of Abu Dhabi's ruler, and is raising up to 2 billion pounds from Qatar's sovereign wealth fund as well as 300 million from a member of Qatar's royal family.

Barclays' investor base has been transformed in the past two years as it has raised funds from investors in China, Singapore and Japan as well as the Middle East and the bank expects to benefit commercially from the links as well as getting cash.

The bank is seeking to raise up to a further 1.5 billion pounds from the sale of mandatorily convertible notes (MCNs) with existing and other investors.

The fundraising will lift Barclays' core tier 1 capital ratio -- a key measure of a bank's financial health -- to about 7.6 percent from 6.3 percent, which could rise near to 8 percent after other efficiency savings.

Other British banks such as Royal Bank of Scotland, Lloyds TSB and HBOS have agreed to take up to 37 billion pounds of taxpayers' funds to help rebuild their balance sheets.

Commerzbank Chief Executive Martin Blessing, who will brief his supervisory board on Tuesday about the situation, will have to weigh the potential tarnishing of the bank's image by tapping the government for cash against the need for capital.

Merck Finck analyst Konrad Becker said a core capital ratio of 8 to 9 percent would be appropriate for Commerzbank, which would mean raising around 2 to 3 billion euros in fresh equity.

Commerzbank's Tier 1 capital ratio is roughly 7.4 percent.

(Additional reporting by Dominic Lau and Atul Prakash in London, with John O'Donnell and Patricia Uhlig in Frankfurt; Writing by David Holmes)