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Wed, Apr 01, 2009 - Page 10 News List

Barclays snubs government asset insurance program


Barclays PLC, Britain’s third largest bank, said on Monday it would not take part in the British government’s program to insure toxic assets, raising fears it would need to raise billions of dollars elsewhere.

The Asset Protection Scheme (APS) allows banks to put billions of dollars in toxic assets, such as mortgage-backed bonds and other securities which have become unsellable because of the financial crisis, into a vehicle that will ensure they are only liable for a proportion of any losses.

Lloyds Banking Group PLC and the Royal Bank of Scotland PLC (RBS) have already signed up for the program, which the government hopes will restore confidence in the sector and restart lending that was curtailed by the global credit squeeze.

However, participation comes at a price. Lloyds paid £15.6 billion (US$22.2 billion) in preferential shares for government guarantees on £260 billion in investments, while RBS paid £6.5 billion to cover £325 billion in assets.

Barclays said it had weighed up the “potential benefits and costs” of participation since the program was announced in January.

“Following further careful assessment and discussions with major shareholders, the Board of Barclays has determined that it would not be in the interests of its investors, depositors and clients to participate in the APS,” the bank said in a statement to the London Stock Exchange.

Barclays’ move follows a statement by the bank on Friday that it had passed a “stress test” by the Financial Services Authority.

But analysts have suggested that the bank might still need to raise more capital to strengthen its financial position even if it sells its iShares business, which it flagged last week.

It said on Monday that talks on a sale of the San Francisco-based asset management unit were “progressing well” with a number of interested parties. Analysts have suggested the bank could raise as much as 5 billion pounds from a deal.

JPMorgan Chase & Co analysts said banks may write down a further US$17 billion over the rest of the year, with Barclays and Deutsche Bank AG having the highest need for further pretax writedowns, amounting to US$4.9 billion and US$3 billion respectively.

“On the other side of the spectrum, BNP Paribas and Credit Suisse Group AG are now looking relatively clean with estimated further markdowns of US$1.1 billion and US$1.2 billion” this year, JPMorgan analysts wrote in a report to clients.


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