Barclays Shares Jump on Government Aid Hopes

Barclays shares jumped Tuesday as Credit Suisse upgraded the stock to "outperform" from "neutral", saying there are chances the bank will use the government's asset protection scheme.

UK banks in totality are once again attractive for investors, Credit Suisse wrote in a note quoted by Reuters, as Barclays was trading 17 percent up and Lloyds, which reached an agreement with the government to insure toxic assets worth more than $350 billion, was up 15 percent.

Barclays is studying the terms of the Lloyds deal as it is considering whether to formally apply to join the UK asset protection scheme before a deadline expires at the end of March, the Financial Times reported on its Web site.

The bank was warned that its balance sheet would be subject to "forensic" examination by the Treasury if it decides to take part in the scheme, as the Treasury would not just look at the assets offered for insurance, but would examine the full balance sheet to make sure it was secure and the bank was able to increase lending, the paper said.

Sharon Lorimer

There were signs that Barclays, if it does take part in the scheme, will present a relatively small portfolio and hopes to pay its insurance fee in cash rather than issue shares to the government, according to the Financial Times.

But a Treasury spokesman told the paper that "a key principle for engaging in discussions with the government about the scheme is agreement to full and timely disclosure of all information across an institution’s balance sheet that the Treasury requires."

Barclays has been keen to avoid government ownership and last year turned to Middle Eastern investors to boost its capital. Abu Dhabi and Qatar's deal with Barclays last October stipulated that if Barclays raised more capital before June at depressed share prices, they would receive a greater number of shares for their original investment.

The British press speculated in January that the Middle Eastern investors may get a controlling stake if this is the case. Barclays said at the time that the conditions do not affect its ability to take part in the government's protection scheme.