Barclays' worries ease as wealth funds stump up

Barclays today said it was close to finalising a huge fundraising, and told the stock market its May profits were well ahead of last year's.

Investors were relieved Britain's third-largest bank plans to raise cash by selling shares to sovereign wealth funds rather than via a rights issue. After initially rocketing 12%, the shares were tonight up 113/4p at 3293/4p.

There was no mention in today's statement of any need for further big writedowns on subprime-related investments or because of the credit crunch. Analysts said that, if the bank had suffered any further major deterioration to its balance sheet, it would have had to mention it.

Barclays is in talks with up to half a dozen sovereign wealth funds in the Far East and Middle East, including China Development Bank and Singapore's Temasek, which between them invested £2.8 billion in the bank last year during its abortive takeover bid for ABN Amro.

Chairman Marcus Agius told a banking conference in Kuala Lumpur, Malaysia, that while the credit crisis is easing it is not yet near an end.

Sources close to the bank say the new fundraising could be carried out along similar lines to last year's, with new shares issued at a modest premium to the prevailing share price and existing shareholders given clawback rights to buy new shares on the same terms.

The 2007 share placing was achieved at more than double today's price, with the two sovereign wealth funds paying 740p a share against the then prevailing share price of 718p. The shares fell to a 10-year low of 3061/2p last Thursday on fears it might follow Royal Bank of Scotland and HBOS and try to raise cash with a rights issue.

The bank said today: "The possible issuance of new equity by Barclays by way of a placing and pre-emptive offer to existing shareholders...is currently under active consideration."

Its trading statement said: "Barclays group profits before tax in May was well ahead of the monthly run rate for 2007.

"Global retail and commercial banking continued to deliver strong growth in profits and investment banking and investment management profits were in line."

Alex Potter, analyst at Collins Stewart, said: "This says little of use other than meaning there is no new profit warnings, which is good news in itself."