Barclays shares soar after stress test

SHARES IN Barclays surged by almost a quarter yesterday after it emerged that an extreme stress test of its financial strength by City regulators had found the bank did not need to raise fresh capital.

Barclays confirmed that the test by the Financial Services Authority (FSA) had shown it could cope with stressed credit market and economic conditions without raising more capital to shore up its balance sheet.

The results of the test were relayed to John Varley, Barclays chief executive, by Hector Sants, FSA chief executive, in a phone call on Thursday night.

Shares in Barclays jumped 33.7p, or 24 per cent, to 173.8p. The shares have now rallied from lows of 51p earlier this year, although they are still down 60 per cent in the past year.

Apart from reducing investor worries that Barclays would need to raise capital, the stress test results also eased fears that the bank would be forced to sign up to the British government’s insurance scheme to ringfence toxic assets, which closes on Tuesday.

The Barclays loan book was stress-tested for a number of gloomy scenarios, far more severe than the sector was subjected to last October, when Royal Bank of Scotland and HBOS were bailed out by the government. This time, the FSA looked at how the loan book would perform over a three- to five-year period in a severe UK recession that might last for at least two years. It also tested for a 50 per cent fall in house prices and falls in the value of commercial property.

Barclays is aiming to announce a sale of iShares, its fast-growing asset management business, as early as Monday, with binding bids due by Sunday. iShares was a pioneer in managing exchange-traded funds, which track share indices or assets.

The bank will spend the weekend evaluating the bids, which could be worth up to £4.5 billion (€4.8 billion) from an array of private equity and trade bidders. It is expected to facilitate the sale by providing a vendor loan for about 80 per cent of the price.

CVC Capital Partners, the UK-based buy-out house, has emerged as a late candidate to buy iShares. Other bids are expected from Goldman Sachs; Bain Capital and Colony Capital; Hellman Friedman and Apax Partners; and Vanguard.