Following widespread rumours, Barclays (BARC) has confirmed plans for a £5.8 billion share sale. The bank dived 6.3% to 289.3p after revealing its stock will be offered at 185p, a 40.1% discount on yesterday?s (July 29) closing price. The ex-rights price is 284p.

The rights issue, underwritten by Credit Suisse, Deutsche Bank, BofA Merrill Lynch and Citi, will help Barclays fill its £12.8 billion shortfall to meet new regulatory demands. The bank is also issuing £2 billion of convertible bonds.

Analysts at stockbroker Daniel Stewart believe Barclays has a clear plan that should allow it to move forward in the next six to 12 months.

In June, the PRA?s capital shortfall exercise highlighted that Barclays had a £3 billion deficit at the end of 2012 against the requirement for an adjusted 7% common equity tier 1 ratio: its core equity compared to its risk-weighted assets. In response, Barclays stated that it would exceed the 7% target this year without 'recourse to equity capital issuance'.

The rights issue follows the earlier-than-expected introduction of a leverage ratio rule - a parting gift from outgoing Bank of England governor Mervyn King. Under the rule, banks must carry 3% of its loan book in cash. The PRA has already said any plans by banks to raise additional funds must not reduce their lending capacity.

If Barclays has to find £12.8 billion, investors will be interested to know how much some of the other banks will need to raise and what it will mean for the expected privatisation of Lloyds (LLOY).

Meanwhile, Barclays posted a 17% drop in interim pre-tax profits to £3.6 billion, but its core tier 1 ratio increased to 11.1% from 10.8% at the end of 2012. The bank has added £2 billion to the £3.5 billion it has spent on the miss-selling of its financial products and paying interest rate hedging compensation.

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Issue Date: 30 Jul 2013