Barclays completed its £6bn rights issue last week. As is the current custom, the issue was pitched so low – a 40 per cent discount – that even a US debt default wouldn’t make the new shares worth less than the offer price.

It’s true that the backers had effectively been on the hook for nearly two months, but it was a pretty comfortable hook. The shareholders put up £5.95bn, but only £5.8bn actually made it into the bank. The rest went in fees, with most of the £150m paid to other banks for taking a tiny risk (which could be easily hedged).

The list of those banks with paws in the honeypot includes the usual suspects among Barclays’ rivals, and many more, a total of 14 bookrunners and underwriters. These days, £6bn isn’t such a big deal, but Barclays clearly saw that spreading the honey around was the best way to ensure it got a helping of someone else’s sweet deal.

In last Tuesday’s FT Patrick Jenkins provided an expose of the mutual back-scratching society that is the community of international banks. You underwrite my fund-raising, and I’ll help out with your deal, which explains why some unusual names were on the Barclays ticket. A while back those busy bees at Goldman Sachs even had a “reciprocity committee”.

This committee would help ensure that no back went unscratched, and it’s clear from the Barclays list that this approach is in fine order. From the bankers’ point of view, this makes perfect sense, especially when they can argue that the crisis showed how quickly seemingly liquid markets could become life-threatening deserts for their employers.

However, there’s a more pressing reason to get in on the next deal: roughly half the fees will end up, not with the bank, but (indirectly) with the bankers, and a multi-billion dollar number ensures that their rewards do not look excessive when expressed as a percentage of the sums involved.

There are no prizes for guessing who’s paying, as any bank shareholder, surveying the value of his holding compared to five years ago, could tell you. Unfortunately, the abuse is not confined to investors in banks.

Rights issues generally used to be pitched at a small discount. The underwriters took a genuine risk of being left with the stock, which encouraged them to examine the case for the cash call. Then came the deep-discounted issue. These transfer so much of the enterprise value to the new shares that they effectively eliminate the risk of loss on those taking them up.

Today, the backers insist on a deep discount as well as underwriting at what is in effect, a tariff. You could hardly expect Barclays to break up the party, since its bankers make so much money from keeping the cartel going. It’s essentially a tax levied by the banks on everyone else’s fund-raising.

In its current form the Banking Reform Bill will oblige the Prudential Regulation Authority to promote competition. Capital raising is one area, albeit among too many others, where it’s badly needed.

Coining it

Last time the US government bumped up against its debt ceiling, analysts suggested minting a platinum coin with a face value of $1tn. A handful of such coins would add up to serious money, and by the time the lawyers had finished arguing whether the ploy was legal, a better political solution would have been found (we hope).

The US Treasury ruled out any such manoeuvre, but it was curious how quickly the Republicans found a compromise shortly afterwards. Still, desperate times, etc. There seems to be nothing to prevent the issue of what would, in effect, be a perpetual zero-coupon loan note, minted rather than printed, just like lesser coins the world over. (It would be a bearer bond, so the holder better look after it).

The UK government is way behind the curve here. The Royal Mint has just struck its first £20 coin, which it’s selling for, er, £20. Bizarrely, there’s a 14-day money back guarantee (discuss) and purchases are rationed to three per household. At current prices, the metal in the pure silver coin is worth just over £10, so it could be considered as a zero-coupon, irredeemable stock issued at a 100 per cent premium. The Minters could move onto platinum for the serious money-raising…

This is my FT column from Saturday

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