Barclays may shun new rescue to avoid U-turn on banking bail-out

Pressure grows on banks to issue emergency trading statements to stem anxiety

Barclays is expected to try to reassure the market today that it can avoid having to sell its shares to the government in return for an insurance policy to limit its losses on toxic assets.

As Barclays, Royal Bank of Scotland, and the new Lloyds Banking Group were coming under pressure to put out emergency trading statements detailing the extent of their losses, it is thought that Barclays was convinced it could find the resources to pay the fee for the insurance policy in cash to avoid an embarrassing U-turn after refusing the £37bn bail-out accepted by its rivals three months ago.

Measures were being finalised last night to try to get funds flowing to households and businesses again with the aim of making an announcement today before the stockmarket opens, amid anxiety that traders lost confidence in Barclays when its shares lost almost a quarter of their value in the last hour of trading on Friday.

At the heart of the measures is a plan to ring-fence toxic assets by selling a type of insurance policy to the banks to cap their losses. In return for taxpayer support, banks will have to pay a cash fee or agree to sell a stake to the government - something Barclays desperately wants to avoid after turning to Middle Eastern investors three months ago to raise funds.

After Friday's dramatic slide in the bank's shares to less than 100p, a level they last touched more than 10 years ago, the Middle Eastern investors face losses of £2.5bn.

The movement in Barclays shares will be scrutinised when trading resumes today - no more so than by Manchester City owner Sheikh Mansour bin Zayed al-Nahyan, the brother of the ruler of Abu Dhabi, and the Qatari royal family, who have injected up to £6bn into the bank.

Friday's slide was so dramatic that Barclays put out a trading statement after the stockmarket close to insist it made at least £5.3bn profit last year, in an attempt to ease concerns that it was stacking up billions of losses on investments that have turned sour in the credit crunch.

Other banks are expected to release statements. RBS could be on course to admit that its losses might reach £28bn, the biggest in corporate history, largely because it needs to write down the value of the string of acquisitions made by former chief executive Sir Fred Goodwin, dating back as far as US bank Charter One four years ago and Dutch bank ABN Amro last year. Analysts believe these writedowns could reach as much as £20bn while losses on the underlying business could amount to £8bn.

While these would not affect the overall capital position of the bank they will do little to provide reassurance about the health of the banking sector.

Lloyds is also under pressure to reveal the losses being stacked up at HBOS which stunned the City last month with a profits warning caused by a rapid rise in the losses in its corporate loan book.

Addressing the issue of the toxic waste in the financial system is part of the package to be formally announced today after a weekend of intense discussions between the government and the big banks.

Lady Vadera and the City minister, Lord Myners, were at the heart of the negotiations to devise ways to kick-start lending by the embattled banks, whose bosses were summoned to one-on-one meetings with government officials last night to learn the terms of the financing packages.

They had also assembled earlier yesterday as details of how to get banks lending again were thrashed out. Work was expected to continue through the night.

As well as devising how to charge a fee for the insurance guarantee, there was also a need for clarity on how the toxic assets would be valued.

The Financial Services Authority is thought to be preparing to scrutinise the various banks' potential losses before they are permitted to participate in the insurance scheme.

The City regulator is also likely to make it clear to the banks that they do not need to hoard capital, in an attempt to encourage them to begin lending again.

Contributors

Jill Treanor and Julia Finch

The GuardianTramp

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