Barclays urged to explain its capital strategy

Analysts say bank may need to raise £3bn in share sale to bolster capital ratios ravaged by the crisis in the lending markets

By Margareta Pagano Business Editor
Saturday 22 October 2011 21:57

Barclays is under growing pressure to explain its capital-raising strategy as fears grow that the bank may have to make further writedowns of up to £3bn.

Pressure on Barclays to give more details of its trading book and its overall capital ratios follows the decision last week by HBOS to raise £4bn in a rights issue to bolster its capital.

Analysts say Barclays will also have to strengthen its capital to take it to levels required by Basel 2, the international banking regulations. Dresdner Kleinwort analyst James Invine lowered Barclays to a "reduce" rating and said the bank may need to raise £3bn in a share sale. Paying its first-half dividend in shares to investors, rather than in cash, was also a likely option, he said.

Barclays has already written down £1.3bn of assets because of the turmoil in the credit markets. It has refused to rule out a rights issue and a spokesman reiterated it was under no pressure to raise new cash. But analysts disagree, arguing that it has to improve its capital ratios above the present 5.1 per cent.

One option open to Barclays would be to ask its two sovereign wealth investors, the China Development Bank and Singapore's Temasek, to buy more shares.

Analysts say a share placing could be simpler than asking investors to dilute their holdings with another big cash call. Institutions have already been asked to stump up £16bn at Royal Bank of Scotland and HBOS.

Barclays is expected to give more details next Tuesday with its interim statement. Shares in the bank rose 2.3 per cent to 476p.

Chief executive John Varley will also be asked to explain why chief operating officer Paul Idzik is leaving. Barclays denied reports that Mr Idzik had become frustrated by the tension between Mr Varley and Bob Diamond, the boss of Barclays Capital, who is in charge of nearly half of the group's profit. One banking source said: "They are at loggerheads. The two are very different and don't get on."

Lloyds TSB will deliver its interim statement this week but a cash call is not expected.

Meanwhile, several banks have confirmed they have taken up the special liquidity scheme offered by the Bank of England to swap their mortgage security assets for new bonds. One said: "It looks as though the Bank's scheme is working. A lot of banks have been in and will be again this week. Our guess is the Bank will need to double this £50bn facility quite quickly."

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