LONDON, July 25 (Reuters) - Barclays is nearing anagreement that would give it until the end of next year toimprove its capital position, according to a person familiarwith the matter, an outcome that may reduce the need to raiseequity.
The Bank of England's Prudential Regulation Authority (PRA)said last month that Barclays and Nationwide fell short of a 3percent leverage ratio, the measure of their equity to assets,after including potential losses and charges.
The PRA said Barclays had a ratio of 2.5 percent under itscriteria and needed to get to 3 percent by the end of this year.Barclays said it would hit the target by the end of 2015 andwarned a more immediate deadline could force it to cut lending.The PRA said that was not an option.
Advocates of higher leverage ratios say they would haveallowed banks to weather the kind of market turbulence thatforced many to request costly government bailouts during thefinancial crisis.
The Financial Times said on Thursday that Barclays and theregulator were close to agreeing on an end-2014 deadline to hitthe 3 percent target.
Sources familiar with the situation told Reuters a deal hadnot been finalised, but one said reaching the target by the endof next year was a likely outcome. Lender Nationwide has untilthe end of 2015 to meet the target but, as a mutually ownedfirm, has fewer options to improve quickly and is lesssystemically important than Barclays.
A Bank of England spokesman said it would not give "arunning commentary" on the negotiation process, and Barclaysdeclined to comment.
Analysts said Barclays should be able to reach the 3 percentgoal by 2014 without needing to raise equity.
Andrew Lim, analyst at Espirito Santo, said Barclays waslikely to generate 4.1 billion pounds of capital this year toimprove the leverage ratio used by the PRA to 2.8 percent andleave it with a 3.2 billion pound capital shortfall, or needingto get rid of 107 billion pounds, or 7.5 percent, of its assets.
"Extending the deadline by a year (to end-2014) would bewelcome and we believe that Barclays would readily be able toreduce the balance sheet by about 7.5 percent without havingmuch impact on profitability. This also means that the risk of acapital raising to meet the leverage ratio has receded," Limsaid.
Barclays shares were down 0.6 percent at 318.5 pence by 1020GMT, in line with a weak European bank sector index.
UK, U.S. and Swiss regulators have stepped up pressure on banks to improve leverage ratios, stoking debate on how tostrengthen lenders without stifling economic recovery.
Ian Gordon, an analyst at Investec, said Barclays' existingcapital plan already provided for significant balance sheetdeleveraging and it should be able to comply by the end of 2014by reducing surplus liquid assets, reverse repos and legacyassets.
An agreement is expected by the time Barclays releases itsquarterly results on July 30. The PRA has said it planned toresolve the issue by Wednesday at the latest.
Barclays (BARC)