Barclays silent on bridging cash gap

May 16 2008 by Iain Laing, The Journal

BARCLAYS is keeping shareholders guessing over whether it will make a multi- billion-pound cash call to bolster its balance sheet.

The UK’s third-biggest bank said all options were open as it revealed a further £1bn write-down due to credit market turbulence and said profits in the first quarter had fallen in a year.

Speculation about a rights issue has grown since Royal Bank of Scotland and Halifax Bank of Scotland raised £12bn and £4bn respectively. Banks are under pressure from regulators to boost their capital reserves after incurring losses on securities backed by US mortgages.

Other options could include capital injections from overseas, after the stakes taken by Singapore’s Temasek and China Development Bank last year.

Finance director Chris Lucas said: “We are not going to rule in or rule out anything at this stage.”

The bank revealed a further £1.7bn of write-downs against credit market exposures and sub-prime mortgages in the US, but this reduced to £1bn because of a £700m gain elsewhere in its investment banking arm.

The UK banking group did not disclose the extent of the first-quarter profits drop, but said trading last January and February had been broadly in line with a year earlier before tougher credit markets hit performance in March.

It did offer some comfort on trading in the UK, particularly in mortgages after picking up an estimated one-fifth share of new mortgage business in the first quarter.

The Woolwich owner said its disciplined approach to lending meant its bad debt charges in mortgages remained low. First-quarter profits in UK retail banking decreased because of lower property credits, but increased strongly when excluding this factor.

Barclaycard achieved “very strong growth” in profits, helped by improved bad debts in the UK, while the investment banking arm Barclays Capital remained profitable despite the difficult trading conditions.

Hargreaves Lansdown Stockbrokers’ head of UK equities Richard Hunter said Barclays was keeping its options open.

“Today’s statement does little to assuage any concerns regarding the likelihood of a rights issue, with the company insisting on keeping the door ajar.

“It maintains that it will continue to monitor all options and will clearly not be drawn on speculation as to what form this capital injection might take.”