Barclays' gamble to go it alone raises hackles among competitors

Barclays' decision to reject the Government's offer of a capital injection surprised banking experts yesterday, with critics sceptical about the bank's claims to have steered a better course than its rivals through the credit crunch.

In tough negotiations with the Financial Services Authority at the weekend, Barclays conceded that it would need to raise £6.5bn – more than it believed it needed – to gain access to the UK's guarantees on banks' debt. But the bank stood firm on the means by which it would raise the funds, opting to go to the market using a long timetable that could take until the end of next March.

Barclays said it would raise £3bn by selling preference shares by the end of the year to meet its commitment to recapitalising the British banking industry by £25bn, announced last week. It will also issue £600m in ordinary shares by the end of the year and another £3bn of ordinary stock in March. It will cancel this year's final dividend, saving £2bn, and take other measures to bring its total extra capital to £10bn.

The bank has raised the hackles of its rivals, including Royal Bank of Scotland, by boasting of its superior risk management and higher quality assets. Doubts have lingered around the bank's share price, about its ability to ride out the debt bust with such low write-downs on toxic assets.

John Varley, Barclays' chief executive, insisted the authorities had "shaken the tree" to test whether Barclays' books were sound. He added that he had been approached by potential investors willing to inject capital into the bank. The bank has already lined up one investor for £1bn, with an existing investor, the Qatar Investment Authority, thought to be in the frame.

If Barclays cannot raise the money in the markets, it can use the Government as a backstop but the terms could worsen. Investors in banks were dismayed yesterday at the Government's demands for 12 per cent interest on preference shares it buys from the banks.

Jane Coffey, the head of equities at Royal London Asset Management, said: "It is a brave move. What they are implying by this is they thought the Government's terms were too onerous and they think they can go and raise the same amount of capital on better terms from sovereign wealth funds or others.

"It is very much a gamble because at the moment you would say the gamble is not looking that likely because RBS, HBOS and Lloyds are down so much." But markets could turn in Barclays' favour, she added.

Mr Varley said Barclays would gain from keeping its independence while RBS, HBOS and Lloyds TSB were restricted by the Government's terms. He said Barclays' grabbing of market share in mortgages this year was "an indicator of what happens when some of your competitors are hobbled in some kind of way".

Mr Varley's remarks prompted Stephen Hester, who has not yet taken over as chief executive at RBS, to join the long-running feud between the banks. "John Varley is very good at talking his own book and I have every respect for John, but I know that at difficult times I would rather have stronger capital ratios to support our customers. Hobbled banks have weaker rather than stronger capital ratios," Mr Hester said.

Barclays' tier one capital ratio will rise to 9.6 per cent after the capital raising compared with 12.7 per cent, Bernstein Research estimates.