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Tue 18 Nov 2008 01:51 PM

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Barclays aims to head off Mideast stake revolt

British bank offers shareholders a slice of the proposed $8.7bn capital injection.

British bank Barclays moved to head off a shareholder revolt on Tuesday by offering them a slice of a 5.8 billion pound ($8.7 billion) capital injection from Middle East investors and scrapping 2008 executive bonuses.

Shareholders will be offered 500 million pounds of reserve capital instruments (RCIs) previously earmarked for investors in Qatar and Abu Dhabi under its controversial capital plan.

Many investors had said the RCIs offered too generous terms to the Middle East investors.

Barclays said its entire board will also stand for re-election in April, confirming a Reuters report on Monday.

Britain's second biggest bank said the move followed meetings between executives and investors.

Qatar's sovereign wealth fund and Sheikh Mansour Bin Zayed Al Nahyan, a brother of Abu Dhabi's ruler, will each make up to 250 million pounds of RCIs available to existing shareholders in a bookbuilding process on Tuesday, the bank said.

"This represents a small, albeit non-equity, olive branch to existing institutional investors," said James Hutson, analyst at Keefe, Bruyette & Woods.

By 1pm Dubai time Barclays shares were down 1 percent at 152.5 pence, in line with a weaker European banking sector and broader UK share market after an early 5 percent gain fizzled out.

Analysts said the concessions increased the prospect that shareholders will approve Barclays' plan at a vote on Nov. 24, but would not change much for investors: Middle East investors will still get all the warrants on the RCIs and commission on the deal, and there would be little change to investor dilution.

Hutson said perhaps more positive was the move by directors to waive their 2008 bonuses.

Barclays follows US investment bank Goldman Sachs and Swiss bank UBS in this week scrapping all bonuses for executives this year.

Almost all banks are under pressure to scrap bonuses and change pay structures, which have encouraged risk taking and contributed to a global credit crisis, regulators and some bankers have said.

Barclays, which has opted to raise fresh capital from private investors rather than subscribe to a government bailout of Britain's banks, is planning to raise 7 billion pounds in total.

Existing shareholders were angered that 3 billion pounds of that was from RCIs only offered to the Qatar and Abu Dhabi investors, offering an attractive 14 percent annual interest.

The bank is raising funds privately rather than take cash from the UK government, unlike its rivals Royal Bank of Scotland, Lloyds TSB and HBOS. Those banks may take up to 37 billion pounds, which would leave the government as the major shareholder in each.

Barclays said it wants to maintain its commercial freedom by not resorting to state funds but critics said it would have been cheaper to make use of the government bailout.

Barclays Capital is acting as the sole bookrunner in placing the RCIs. Credit Suisse and JP Morgan Cazenove are acting as co-managers. (Reuters)

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