Speculation increases on Barclays revenue deal

Banking giant Barclays today fuelled speculation that it is to seek a £4bn (€5bn) cash injection from overseas investors.

The group said the issue of equity to new and existing investors was under "active consideration" after weekend press reports that it was holding talks with six potential so-called sovereign wealth fund investors.

Barclays also sought to reassure over trading, stressing that profits before tax in May were "well ahead" of last year's monthly run rate.

Its retail and commercial banking divisions were delivering "strong growth in profits", while investment banking profits were in line, added Barclays.

News of a possible capital-raising exercise by Barclays follows major rights issues from the Royal Bank of Scotland - which raised £12bn (€15.2bn) - and Halifax Bank of Scotland, whose shareholders are being asked for £4bn (€5bn).

Shares in Barclays opened 7% higher following the trading update and news of the potential fund raising.

The bank is said to be in discussions with investors including the China Development Bank and Temasek, a Singaporean government-backed fund - both nursing paper losses from the stakes they bought in Barclays last year.

The group is reportedly looking to bring on board three investors for its plans.

Barclays is thought to be keen to prevent the holdings of existing shareholders from being diluted by giving them a chance to buy shares, but the sovereign wealth funds will underwrite the placing by buying up any unwanted stock.

The group remained tight-lipped on details of the potential fund raising move today, saying only that a further announcement will be made if it decides to go ahead with the plan.

Reports suggest that Barclays is under pressure from regulators and investors to boost capital reserves, with the group understood to have one of the lowest core "tier one" equity ratios - a key measure of bank balance-sheet strength - in Europe.

Bank finances have been battered by the credit crunch and collapse of the sub-prime mortgage market in the US, which have led to hefty write-downs and losses.

Barclays has so far taken a £2.64bn (€3.35bn) hit in write-downs after revealing a further £1bn (€1.26bn) hit in May.

The group also said in its May update that first-quarter profits were lower than a year earlier and that its capital ratio had fallen from the 5.1% seen in December.

However, while a fund raising exercise would help boost its capital strength, Barclays is also believed to want outside investment to help fund its expansion into Pakistan, where it has recently gained a banking licence.

It is also reported to be stepping up its businesses in the United Arab Emirates and the US.