Barclays Surges After Saying It Won’t Need Capital From U.K.

By Jon Menon

Jan. 26 (Bloomberg) -- Barclays Plc jumped the most in at least two decades in London trading after saying it won’t need funding from the government because revenue increased last year.

Barclays’s investment bank and the Lehman Brothers Holdings Inc. assets acquired last year are driving profit and “record revenue,” cushioning the London-based company against about 8 billion pounds ($11 billion) of credit-related writedowns in 2008, it said today in a statement. Barclays rose as much as 55 percent after saying it exceeds regulators’ capital requirement by 17 billion pounds.

“It alleviates the concerns the market had about Barclays needing more capital for now,” said Mamoun Tazi, an analyst at MF Global Securities Ltd. in London who rates the stock “sell.”

The report is Barclays’s latest attempt to regain investors’ confidence after its shares fell 66 percent this month. Barclays, which opted out of Prime Minister Gordon Brown’s 50 billion-pound plan to recapitalize banks, will release earnings eight days ahead of schedule on Feb. 9 and said 2008 pretax profit will exceed 5.3 billion pounds. Edinburgh-based Royal Bank of Scotland Group Plc said last week it expects to write down as much as 20 billion pounds and post the biggest loss in U.K. history.

“These figures demonstrate that although we have been heavily impacted by the credit crunch, our income generation was at a record level in 2008 and has enabled us to withstand this impact and still produce strong profits,” Chairman Marcus Agius and Chief Executive Officer John Varley said in an open letter.

Barclays rose to 79 pence as of 9:20 a.m. in London, valuing the bank at 6.5 billion pounds and reducing this year’s decline to 49 percent. London-based Lloyds Banking Group Plc, which completed the takeover of HBOS Plc the month, rose 17 percent to 57.6 pence in London, valuing the bank at 9.5 billion pounds.
Barclays Capital

Barclays said it has 36 billion pounds of equity capital and reserves and generated “strong” income from the Barclays Capital investment bank, retail and commercial banking, fund management and private banking. Profit was lifted by the bank’s acquisition of Lehman Brothers Holdings Inc.’s U.S. assets and a gain on the sale of a life-insurance unit, Barclays said.

Today’s statement “helps allay the worst fears that they would not have enough capital,” said Alan Beaney who helps manage $2 billion at Principal Investment Management in Sevenoaks, England. “But until we see all the full-year numbers, we are investing in the dark.”
Barclays said hedging and gains on its own bonds will limit net writedowns in 2008 to 5 billion pounds. The bank had gross writedowns of 3.3 billion pounds and net writedowns of 2.2 billion in the first half of the year, it said.
“We will provide extensive details as to the level of writedowns and marks by asset class when we report our results,” Barclays’s statement said.

‘Incremental Information’ 

The writedowns were in line with Sanford C. Bernstein & Co. estimates, said Bruno Paulson, a London-based analyst at who has a “buy” rating on Barclays. Investors had speculated there was about a 70 percent chance that Barclays would be nationalized, he said in a note to investors last week.
“There isn’t a lot of incremental information, but what there is gives more comfort in the 2008 results,” he said.

Barclays still hasn’t marked down assets as aggressively as peers, Tazi of MF Global said.
Barclays raised 5.3 billion pounds on Oct. 31 after deciding against joining RBS and Lloyds Banking in taking capital from the U.K. It sold securities including convertible notes to Sheikh Mansour Bin Zayed Al Nahyan of Abu Dhabi, Challenger Universal Ltd. and Qatar Holding. The investments stipulated that Barclays offer additional shares at a discount to the Middle East group before accepting any money from the U.K.

Analysts including Simon Willis of NCB Stockbrokers Ltd. said last week that Barclays might need more capital to cover writedowns and to participate in the government plan to absorb some of banks’ losses on toxic assets.

Toxic Assets 

Varley said in a broadcast last week that the bank would prefer to pay cash to use the U.K.’s plan announced this week to guarantee toxic assets.
Abu Dhabi’s royal family and two Qatari investors purchased a 32 percent stake in October after Barclays decided against accepting funds from the British government. Provisions intended to prevent dilution of their stake wouldn’t stop the company from taking up assistance from the U.K. government, Barclays spokesman Alistair Smith said last week. Other investors who bought Barclays convertible notes have similar protection, he said.

RBS will give the government a 70 percent stake after saying Jan. 19 that writedowns will force the bank to post a 2008 loss of as much as 28 billion pounds. Lloyds Banking, 43 percent owned by the U.K., rejected the government’s offer to increase its stake.

To contact the reporter on this story:
Jon Menon in London at 
jmenon1@bloomberg.net

Last Updated: January 26, 2009 05:13 EST