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 |  Subject: UK: Barclays shares in new collapse as bank crisis enters second phase  Sat Jan 17, 2009 4:15 am | |
| Shares in Barclays and Royal Bank of Scotland plummeted as huge losses at two of America's biggest financial institutions sparked fresh fears for the future of Britain's banking industry.
In a frantic hour of trading, Barclays lost almost a quarter of its value - marking the second wave of a banking crisis that has already dragged the industry to the edge of collapse. The dramatic fall, which also shook the newly merged Lloyds TSB and HBOS, forced banking chiefs to cancel a planned summit in the City and triggered a flurry of emergency meetings in Whitehall.
Alistair Darling, the chancellor, met Adair Turner, the chairman of the FSA, the main financial regulator, while Gordon Brown met Mervyn King, the governor of the Bank of England, to assess the damage after a week of devastating news for the banking industry.
Barclays denied it faced financial problems and rushed out a statement to the New York stock exchange before trading closed. The bank, which is due to report its figures next month, said profits before tax for 2008 after all charges and costs should be well above forecasts of £5.3bn. The bank's tier one capital ratio should be 6.5% at the end of the year and the total capital ratio will be 9.1%, putting it in line with many of its peers.
Analysts said Barclays had suffered a severe loss of confidence following speculation that it faces further losses on hundreds of billions of pounds worth of toxic investments. Concerns that the main City regulator had added to the bank's woes by lifting a ban on short-selling was dismissed by the government, but were leaped on by opposition MPs as an indication of government incompetence. Some City traders said the dive in Barclays shares had been fuelled by rumours of the bank's imminent nationalisation spread by short- sellers who profit from falling prices.
Vince Cable, the Liberal Democrat treasury spokesman, said it was "absolutely extraordinary" that the ban had been lifted. "Another wave of speculative pressure is the very last thing that is needed," he said. But Barclays shares have been falling all week, along with those of the other major banks, as investors come to terms with further bailouts by the US government and a raft of gloomy predictions for the UK economy.
Citigroup, Bank of America and Merrill Lynch revealed losses over three months of $25bn (£17bn) between them yesterday.Citigroup sought extra funds from the US treasury and is being forced to break itself up as the price of its rescue. Bank of America, which bought the largest mortgage lender in the US last year at the height of the sub-prime crisis, also announced large write-downs on its assets, mainly sub-prime home loans. The US government has promised $800bn of extra funds after the Senate released the second tranche of a $750bn bailout yesterday.
The scale of the support for the US banking system has shocked even the hardened operators in the City and triggered soul-searching among investors, many of whom have seen the value of their holdings sink by 90% since a peak in early 2007. Many investors expect the banks' 2008 results next month will involve multi-million pound write-downs in a wide range of assets caused by the credit crunch. Auditors have already told the government they are reluctant to sign off the accounts of banks and many other companies because of funding worries. Analysts at RBS predicted banks would be unprofitable until 2011.
The Treasury has become aware in recent days of a general loss of confidence in the banks' capacity to escape from with credit crunch. Last night it indicated that plans to bolster the industry would be brought forward, possibly to early next week. A range of options to kick-start lending, including a scheme ring fence $200bn in toxic assets, will be discussed with the big banks at a meeting on Sunday.
http://www.guardian.co.uk/business/2009/jan/16/barclays-bank-shares-in-new-collapse
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