Barclays planning to raise extra £6.5bn in capital

Barclays plans to raise more than £6.5bn (€8.2bn) of extra capital from investors as part of moves to strengthen its balance sheet.

The bank will also not pay a dividend worth £2bn (€2.5bn) for the 2008 financial year, it said today.

Meanwhile, a revolution in British banking will be sparked today when plans are unveiled for the taxpayer to take a stake in some of the biggest names in the sector.

HBOS and Royal Bank of Scotland could be effectively nationalised as the British government puts its £500bn (€6.29bn) rescue package for the financial system into action.

Lloyds TSB and Barclays are also set to ask for taxpayer cash in return for shares in order to stay afloat amid global turmoil.

The huge bailout will leave foreign-owned HSBC as the UK’s only major, fully independent High Street bank. The British government already controls two significant mortgage lenders, Northern Rock and Bradford & Bingley.

The dramatic moves come as hopes were raised that plunging markets might be about to stage a fightback.

Early futures index figures suggested that US stocks will open higher today after EU leaders signed up to Gordon Brown’s blueprint for recovery.

The announcement, after an emergency summit of eurozone countries in Paris yesterday, was seen as a significant personal victory for Mr Brown.

Opposition from senior figures such as German Chancellor Angela Merkel had stymied joint progress before. But further market dives appeared to focus minds, and the group pledged to guarantee lending between banks, and step in with state funding to prevent major financial institutions collapsing.

The US came on board with similar action over the weekend, after Mr Brown and British Chancellor Alistair Darling set out their proposals last week.

Mr Brown – who, in a break with precedent, attended the Paris summit despite Britain not being in the single currency – praised the eurozone measures as the best way of restoring “confidence” to the shattered international system.

“The difficulty that we have got at the moment is in restoring confidence in the banking system. What is missing is confidence itself,” he said. “I believe that the action we have taken in Britain will restore that, and we will see over the next few days worldwide action that will also see confidence restored.”

The International Monetary Fund also expressed hope that the situation would be stabilised by the EU move.

However, City traders are braced for turbulence when banks reveal the sheer scale of support they need to stay viable this morning.

Altogether institutions are expected to take up the full £50bn (€63bn) allocation in fresh capital on offer from the British government. There has been some speculation that ministers could even be forced to enlarge the fund to £75bn (€94bn).

Initially the banks will try to raise what they can from private investors with a share issue, but the taxpayer will guarantee to purchase whatever stock cannot be sold.

It was reported last night that the British government has decided it must take a majority stake in both RBS and HBOS, which would probably mean having representatives on the ruling boards.

Nerves were strained further last night when Lloyds TSB and HBOS were forced to deny reports that their emergency merger – brokered by Mr Brown and Chancellor Alistair Darling just three weeks ago – had fallen through.

Speculation has been growing that the Government’s offer to shore up banks by part-nationalising them had undermined the deal, with Lloyds now convinced it is overpaying.

Meanwhile, the financial crisis is expected to claim its first senior victim today with the resignation of RBS chief executive Fred Goodwin.

His scalp is unlikely to be the last amid a growing clamour from politicians and the public for those responsible for the crisis to be punished.

Mr Brown will hold a press conference in Downing Street this morning after details of the bank recapitalisations are announced.

A YouGov poll for the Sunday Times yesterday indicated that, despite the looming shadow of recession, he was benefiting domestically from the crisis.

The PM and Mr Darling were more trusted to run the economy than their opposite numbers, David Cameron and George Osborne, by a clear margin of 33% to 27%.

Mr Brown’s personal approval rating has also improved by 19 points over the past month, although it remains in negative territory at minus 34%.

Labour’s poll rating has gone up 9% to 33% over the same period, slashing the Tory lead from 19% to 10%.