Pressure mounts on Barclays to strengthen its capital position

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The Independent Online

Barclays conceded yesterday that it was under increasing pressure to raise capital as investors said the bank's attempt to get by with a thinner buffer than rivals was untenable.

The bank insisted that it was in a stronger position than competitors who had announced rights issues because it remained profitable so far this year. But analysts and investors believe that the bank's favoured option for raising capital – an injection from a sovereign investor – is now inevitable.

Chris Lucas, the finance director, faced a barrage of questions from analysts about the bank's capital and its lower credit crunch losses compared with competitors.

Mr Lucas said Barclays' core tier one capital ratio could dip under 5 per cent by the end of the first half, below Barclays' 5.25 per cent target and adrift of the 6 per cent benchmark set by Royal Bank of Scotland and HBOS in announcing their rights issues.

Mr Lucas insisted that just because others were aiming for a 6 per cent core buffer, it did not follow that Barclays' business required it. Mr Lucas said: "The important thing is that if we do it [raise capital] it will be for the benefit of us and our shareholders rather than market sentiment. But we have to acknowledge what the market is saying and what the regulators are saying and we can't swim against that tide."

Banks are under inc-reased pressure from the Financial Services Authority and the Bank of England to declare losses, recapitalise and shore up confidence in the financial system. After the Bank of England's dire warning on inflation and a raft of similarly gloomy data for the UK, Barclays' wait-and-see position looks tenuous.

A fund manager who holds Barclays shares said: "They will be disadvantaged competitively without some new capital at some stage. Unless something significantly nasty happens in the near future it will be hard for them to come back and do a rights issue. We will probably see another major [sovereign] shareholder turn up or one or two of the existing ones will take more stock."

Barclays announced £1.7bn of gross losses from credit markets in the first quarter at its Barclays Capital investment bank. The net losses were £1bn because of £700m of revaluation gains on Barclays' own debt. The charges meant that Barclays' profit fell in the first quarter. Mr Lucas told analysts he was comfortable with the consensus estimate of £6.3bn for 2008 pre-tax profit, down 10 per cent from 2007.

Barclays already has two sovereign investors after raising about £2.5bn by selling stakes to Temasek of Singapore and China Development Bank last year. The bank is said to be in talks with a number of potential sovereign shareholders about a further injection.

The bank said its underlying performance was strong across all its businesses, and that it was expanding and taking market share, particularly in the UK mortgage market. But analysts said the bank would have less room for growth once rivals had secured more capital.

Moody's cut Barclays' financial strength ratingto B from B+ with a negative outlook. The credit rating agency said that Barclays' earnings and capital strength could come under pressure from its exposure to credit markets and the British and Spanish eco-nomies.

Barclays' shares closed down nearly 2 per cent at 418.75p. The shares have fallen on each of the last six trading days by a total of nearly 12 per cent.