Barclays admits to £8bn of writedowns in open letter

Battered shares surge 73 per cent as bank moves to try to reassure investors

Barclays confessed to £8bn of credit-market writedowns yesterday as its chairman, Marcus Agius, wrote an extraordinary open letter to investors and customers to try to stem the panic surrounding the bank's shares.

The bank said that, even after the writedowns, its tier-one capital buffer would be £17bn more than the regulator's minimum, allowing it to absorb further losses. Record revenue in 2008 will more than offset the writedowns on toxic assets, producing pre-tax profit of more than £5.3bn for 2008, the letter said. Barclays also moved the date for its final results forward eight days to 9 February.

"Our capital resources are sufficient to manage Barclays safely and prudently even in these difficult markets," Mr Agius and his chief executive, John Varley, wrote. "We are not seeking subscription for further capital – either from the private sector or from the UK Government."

The highly unusual letter was the bank's latest attempt to stabilise its share price, which has been battered for almost two weeks by fears of big losses on toxic assets that could force it to raise more capital or be nationalised. The shares surged 73 per cent to 88.7p.

The £8bn gross writedowns for the year show a surge in the second half after a charge of £3.6bn in the first half, reflecting market turbulence since September. The extra losses followed a similar pattern to those announced by RBS a week earlier in a move that increased the panic about Barclays.

Jon Kirk, an analyst at Redburn, said in a note: "Growth of losses appears broadly in line with other banks, though we have no details on individual asset classes at this stage. I doubt this will be enough to convince the bears that they have marked deeply enough."

Barclays has been plagued by fears that its writedowns on toxic assets have been too lenient and that massive losses are lurking in its balance sheet. The bank acknowledged investors' demand for clarity by promising "extensive details" on markdowns when the results are announced in two weeks.

Mr Agius said Barclays had absorbed the falling value of the credit assets because Barclays Capital, the investment bank where the loans are housed, commercial banking and wealth management had generated strong revenue. "These figures demonstrate that although we have been heavily impacted by the credit crunch, our income generation was at a record level in 2008 and has enabled us to withstand this impact."

Barclays' announcement helped boost shares in Lloyds Banking Group by 32 per cent and in RBS by 20 per cent. The three banks were the biggest gainers in the FTSE 100, which rose 3.9 per cent. Hopes were also raised that the Government would not impose harsh demands on the banks in return for insuring their risky assets after the Dutch authorities offered generous terms to insure troubled assets at ING.

Yesterday's letter followed earlier attempts to halt the slide in the bank's shares. The bank issued a profit prediction on 16 January and an interview with Mr Varley late last Thursday, but could not stop the plunge. Shareholders have put the bank under pressure to bring forward its annual results announcement to get audited figures to the market as soon as possible.

"Writing in this way ahead of the release of results is unusual, of course, but the turn of events is also unusual," Mr Agius said in the letter.

Bank shares have been in turmoil since the Government announced its latest bailout for the sector two weeks ago. With details still to be agreed with individual banks, fears have mounted that the Government would impose high insurance fees or demand equity stakes in return for support, raising the spectre of nationalisation. Barclays shunned a state capital injection in October and raised funds from the Middle East instead after heated talks with the authorities.

Colin Morton, a fund manager at Rensburg, said: "I don't think today's share price tells you any more than when it was at 150p or 50p. The risk of these companies is still just as high as far as I can see. There will be more volatility because the equity is now such a small element of these companies."

Mr Agius said Barclays' capital position could benefit from the Government's insurance scheme and the Financial Services Authority's move to bring down the amount of capital banks would be made to hold as the economy slows. Barclays is understood to believe the FSA's measure is extremely important and is in talks with the Government on the terms for taking out insurance.

Barclays said its profit prediction included various "significant items" including a profit on the sale of its closed life insurance business and a goodwill gain from its fire-sale purchase of the Lehman operations. The bank added it had made a good start to 2009 and that Barclays Capital was performing particularly strongly after integrating its acquisition of the Lehman business.

KBW analysts said: "We await the results before assessing the underlying performance of the business ... There are still too many moving parts within the reported profit numbers to draw any meaningful conclusion."

Lloyds Banking refused to comment yesterday on speculation that it was considering swapping ordinary equity for £4bn preference shares issued to the Government under October's sector bailout. The move would save Lloyds about £500m in interest payments, but increase the Government's stake in the newly merged Lloyds-HBOS group to more than 50 per cent from 43 per cent now.