UPDATE 2-Barclays CEO seeks to calm fears as shares slump

Fri Jan 23, 2009 10:52am GMT

Quotes

   

*CEO says would likely pay for asset insurance in cash

*Sentiment in bank sector at low point in cycle -CEO

*Fears of capital injection, nationalisation persist

*Shares sink 13 pct

(Adds analyst comment, details)

By Steve Slater

LONDON, Jan 23 (Reuters) - Barclays (BARC.L) shares slumped for the ninth straight day on Friday as concerns mounted it may require further capital or be nationalised, despite another attempt by its chief executive to calm investors.

Chief Executive John Varley said he was confident a second bailout plan unveiled by Britain on Monday would boost credit supply and the economy, and if his bank took part in an asset insurance plan it would probably pay in cash rather than shares.

"Our predisposition would be to pay in cash," Varley said in a video interview aired late on Thursday.

Varley said there was little the bank could do about its share price, which has lost over two-thirds since Jan. 12.

It has been hit by fears the government may need to inject more cash or nationalise more banks -- despite confirmation from Barclays it will post one of the biggest profits of any bank in the world for last year.

By 1030 GMT, Barclays shares were down 13 percent at 51.5 pence, cutting its market value to under 5 billion pounds.

Royal Bank of Scotland (RBS.L) was down 5.7 percent at 11.5p and Lloyds Banking Group (LLOY.L) was down 3.9 percent at 47.2p, taking their losses in the last two weeks to 78 percent and 64 percent respectively.

"The sentiment in the banking sector at the moment, whether it's in the United Kingdom or the United States or Europe, is at a low point in the cycle," Varley said.

Investors are steering clear of any bank viewed as being at risk of nationalisation, as a full state takeover would probably leave shareholders with nothing, analysts and dealers said.

Some viewed the sector's fall as now overdone.

"We would argue that the recent share price collapses mean that the risk/returns are out of whack, and that the stocks have the potential for massive upside if they avoid the perils of full nationalisation," said Bruno Paulson, analyst at Bernstein.

Paulson said current share prices imply Barclays only has a 16-25 percent chance of staying independent, RBS a 13-20 percent chance and Lloyds a 19-30 percent chance.

There has been no evidence of aggressive short-selling in bank stocks since a ban was lifted last week.

Hedge fund Lansdowne Partners is the only investor to declare a short position of more than 0.25 percent in Barclays, and it bought back most of the shares on Jan. 21, reaping a quick profit of up to 11 million pounds.

Tough capital market conditions in the fourth quarter and fears about writedowns and capital prompted Barclays to issue a rushed trading update last Friday saying 2008 profits would be "well ahead" of analyst consensus forecast of 5.3 billion pounds ($7.31 billion), even after writedowns. [ID:nLK715659]

"It would be irreconcilable for our trading performance in the fourth quarter to have been very bad for us to have been able to say what we said about our performance relative to consensus," Varley said.

The cost of insuring against the risk of default at Barclays has also widened in the past two weeks. It cost $191,640 a year to protect against the default of $10 million of the bank's debt on Thursday, up from $138,130 on Jan. 12, based on 5-year credit default swaps.

(Additional reporting by Dominic Lau, Adrian Croft and Jonathan Cable; editing by John Stonestreet)