David Prosser: Barclays raises its voice and finally makes itself heard

Outlook: It’s difficult to see how the state could nationalise Barclays on different terms to Northern Rock

“If they don’t hear us, we’ll shout a little louder.” It was apparently the girl guides who invented the famous campfire song, but Barclays seems to have taken the advice to heart. The open letter from John Varley and Marcus Agius published yesterday repeated what Barclays said 10 days ago – that the bank will be profitable this quarter, even after all those horrid writedowns, and more so than people expect.

This time, the message seems to have got through, and, like those girl guides, Barclays did others a good turn yesterday too. Not only did the bank’s own share price manage a record one-day gain, it pulled the rest of the sector – and the wider market – up with it.

However, that Messrs Varley and Agius have had to shout themselves hoarse in order to undo some of the damage done to Barclays’ share price last week is the perfect illustration of the remarkable collapse of confidence in Britain’s biggest banks.

To recap, a week ago last Friday, Barclays reacted to a last-minute fall in its share price by putting out a statement insisting that its firstquarter profit would be ahead of the £5.3bn consensus forecast. But when the market reopened last Monday, the good intent of that statement was wiped out by a disastrous trading update from Royal Bank of Scotland and the unveiling of more help for the banks from the Government.

The message from the market to Barclays last week, as its share price fell further each day, was simple: we don’t believe you. Never mind the fact that Barclays executives would have had their collars felt had they been fibbing, they’ve now had to produce the arithmetic they did to support their claims.

Not that yesterday’s updated update was all happy reading. Some £8bn of writedowns is hardly a matter for celebrations. And the profits have clearly had a one-off boost from the integration of the Lehman businesses Barclays bought after the US bank’s collapse last autumn.

Still, on the basis of what we know now, this is plainly not a bank in imminent need of a state-run rescue.

Indeed, it now seems odd that Barclays’ Middle Eastern backers felt the need last week to fire a warning shot across the Government’s bows about nationalisation. There’s no need for ministers to step in at Barclays, even if they were keen to do so, which they’re very obviously not.

How then did we have a week like the one just passed? Barclays itself has to take a chunk of the blame.

Such is the hostility many shareholders feel towards the bank following the way it turned to the Middle East for capital – and the terms on which it did so – that many no longer feel inclined to listen to anything the bank has to say.

Nor were the Government’s latest efforts to enable the banks to increase their lending helpful.

In time, the toxic asset insurance scheme, in particular, could be a big help for banks trying to improve their capital strength, but last week’s announcements were vague and gave the impression of a new panic, particularly since they coincided with that dreadful RBS statement.

One other thought. Not many people feel a great deal of sympathy for shareholders who lost out when Northern Rock was privatised, particularly not the large hedge funds which are battling for a better deal on compensation in the High Court.

However, by nationalising Northern Rock in the way that it did – instructing the independent arbiter deciding what compensation shareholders should get that the decision should be made using the assumption that Rock was not a going concern – the Government set a dangerous precedent.

Anyone concerned that another bank might be nationalised is naturally bound to assume the process would be handled in the same way. Indeed, it’s difficult to see how the state could nationalise, say, Barclays, on different terms to Northern Rock. As a result, investors assume they would get almost nothing froma nationalisation – hence the massive sell-off of shares in banks thought to be in any way vulnerable to such an outcome.

It didn’t have to be this way. There was no reason why – in fact, this is still an option – the Government couldn’t have offered Northern Rock shareholders some sort of warrant, a share in the spoils on the day that the mortgage bank is finally sold back into private ownership.

Those securities would have offered some value, while costing nothing in any circumstances other than a successful privatisation a few years down the road. This sort of warrant would also have allayed some of the terrors felt by shareholders in other banks facing even a hint of a threat of nationalisation.