Barclays under pressure to insure bad loans

Board directors want to pay for the Government's aid in cash to avoid being owned by the Treasury
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The Independent Online

Barclays board directors meet this week to decide whether the bank should take part in the Government's Asset Protection Scheme (APS) to buy insurance against losses on bad loans and if it should proceed with asset sales to help fund it.

A Barclays board member said yesterday that the bank does not need to participate in the scheme because it is in "great financial shape", but it may be forced to insure about 10 per cent of its loan book. Barclays is under increasing pressure from the Government to insure part of its loan book because it wants to the UK's big banks to be as watertight as possible, he said. The deadline for the scheme – set up to prevent losses on any more toxic loans infecting the banking system – is 31 March.

The director said: "Gordon Brown is determined not to have any more banking crashes or problems until the election. There's no doubt that this is why the pressure is being put on us to take part. But it's expensive and we don't need to take part."

Shares in Barclays rose again on Friday, by 3 per cent to 74p, after speculation that the bank is considering selling its fund management arm, Barclays Global Investors, for up to £5bn, or Barclaycard, to help pay for the scheme.

Barclays has been canvassing big investors all week to gauge their support for its strategy, particularly its Middle Eastern investors, Sheikh Mansour Bin Zayed Al Nahyan of Abu Dhabi, Challenger Universal, and Qatar Holding, which bought a third of Barclays' shares last October to avoid taking taxpayer's money. But the price for Middle Eastern support was giving the investors a special anti-dilution clause in their contract, which means they have special rights over any new share issues, a move that has infuriated other investors and led to the board putting itself up for re-election at its April annual meeting. Investors such as Legal & General believe Marcus Agius, the chairman, should step down.

Barclays has always said if it does participate in the scheme, it would prefer to pay in cash to avoid having to hand over shares or issuing new ones to the Government. If Barclays goes ahead, it is likely to ask for state guarantees on about £30bn, although some analysts have put the amount to be insured as high as £80bn.

This compares with the £325bn which Royal Bank of Scotland has insured and the £260bn for Lloyds Banking Group, now both state-controlled after two separate bailouts. The high fees being charged by the Government have been paid by upping its stakes in the banks, with the taxpayer now owning 95 per cent of RBS and 77 per cent of Lloyds. They have issued non-voting shares to the Government to cover their fees for the scheme – in the case of Lloyds, a fee of £15.6bn while RBS is paying £6.5bn.

Meanwhile, calls for the Lloyds chairman, Sir Victor Blank, and its chief executive, Eric Daniels, to step down over their decision to buy HBOS appear to have subsided.