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Barclays: Death Spiral Fun
By: Financial Ninja   Friday, January 23, 2009 10:54 AM

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This is called Death Spiral Finance… and it always ends in tears. Stupid Barclays (BCS) got themselves into a death spiral situation.

For nimble traders of the intraday variety, BCS can be great fun, but don’t hold overnight… long or short. Gaps of 20% in either direction will be the norm.

Barclays May Have to Give More Control to Gulf Group (Update2): “Barclays Plc may have to give up more control to Middle East investors if the U.K. bank is forced to seek additional capital.

Abu Dhabi’s royal family and two Qatari investors purchased a 32 percent stake in October after London-based Barclays decided against accepting funds from the British government. Barclays fell 10 percent today in London to the lowest in two decades after the bank said its agreements stipulate it must offer additional shares at a discount to the Middle East group before accepting any money from the U.K.

The provisions, intended to prevent the dilution of the 32 percent stake, wouldn’t stop the company from taking up assistance from the U.K. government, Barclays spokesman Alistair Smith said by telephone today. Other investors who bought Barclays convertible notes have similar protection, he said.

The anti-dilution clauses “have no bearing on Barclays’s ability to participate in the package of measures announced by the tripartite authorities,” Smith said.

Barclays raised 5.3 billion pounds ($7.4 billion) on Oct. 31, selling securities including convertible notes to Sheikh Mansour Bin Zayed Al Nahyan of Abu Dhabi, Challenger Universal Ltd. and Qatar Holding. Barclays has plummeted since then in London trading on speculation it will need more capital to cover credit writedowns and may be taken over by the British government.

“This means that it’s going to be tricky for them to raise capital in the next five months,” said Bruno Paulson, an analyst at Sanford C. Bernstein in London who has an “outperform” rating on the stock. “The clause didn’t really matter when the stock price was healthy. It only kicked in severely this week.”

The stock is down 61 percent this month and 67 percent since Barclays announced plans to sell the convertible notes.

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