City waits on rights issue as analysts say Barclays needs £5bn

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The Independent Online

Barclays will this week disclose whether it plans to go ahead with the third rights issue by a big British bank in a month, when it gives an interim trading update on Thursday.

A dramatic jump in write-downs linked to the credit crunch could force the bank to tap shareholders for cash, or more probably see funds from an outside investor such as Singapore's Temasek or China's Development Bank brought in.

Barclays chief executive John Varley is said to have met with the state-backed Korean Investment Corporation over a possible cash call to shore up its ailing capital position.

Analysts have predicted the bank will need to raise around £5bn to align its capital ratios with those of other European banks. They have also forecast that Barclays is likely to pay dividends in the form of shares, rather than cash too.

Barclays has already been forced to write down £1.3bn worth of assets because of the turmoil in the credit markets.

Shares in Barclays closed down 2.48 per cent on Friday at 451.5p, reflecting concerns that a fund-raising of some kind could be announced next week.

In a busy week for banks, HSBC will tomorrow disclose the extent to which troubles at its American business have further eaten into profits, when it publishes first-quarter results for the US division in 2008.

On Tuesday Alliance & Leicester chiefs will deliver a trading update at the bank's annual general meeting, where scrutiny of the its longer-term funding is likely to figure strongly.

Meanwhile, an information memorandum will tomorrow be issued to interested bidders in Royal Bank of Scotland's (RBS) insurance marques, including the likes of Direct Line, Privilege and Churchill, which have been put up for sale.

The investment banks Merrill Lynch and Goldman Sachs, which are conducting the auction for RBS, will hope to raise as much as £7bn for embattled chief executive Sir Fred Goodwin, whose reputation has been hammered in the wake of the bank's recent £12bn rights issue.

RBS is also thought to be keen to sell its 50 per cent stake in Tesco Personal Finance, while it is also believed that it may extricate itself from a joint venture with Spain's Bankinter.

Last week, LloydsTSB gave the banking arena some much-needed respite when it revealed lower-than-expected losses, enabling it to avoid a rights issue.