Barclays Borrowed as Much as $3.2 Billion From BOE (Update3)

By Jon Menon

Aug. 31 (Bloomberg) -- Barclays Plc, the third-biggest U.K. bank, borrowed as much as 1.6 billion pounds ($3.2 billion) from the Bank of England after a failure in the system that processes trades, according to a person with knowledge of the transaction.

The Bank of England, acting as the lender of last resort, said yesterday it extended the cash at its highest interest rate of 6.75 percent, without identifying the recipients. The facility was last tapped on Aug. 20, when Barclays borrowed 314 million pounds after a loan from HSBC Holdings Plc was delayed.

``The Bank of England sterling standby facility is there to facilitate market operations'' in the event of technical breakdowns, Barclays spokesman Alistair Smith said in a statement yesterday. He declined to confirm whether London-based Barclays borrowed the money. ``There are no liquidity issues in the U.K markets. Barclays itself is flush with liquidity.''

Euroclear's CrestCo, which settles trades in London, said in a statement yesterday there was a ``processing disruption'' with the Bank of England the day before. No client reported any ``settlement issues'' to the agency. A Bank of England spokeswoman declined to comment yesterday when asked whether the demand for funds was linked to the disruption.

Barclays rose 2.7 percent in London trading to 613.5 pence. The shares have declined 16 percent this year, giving the company a market value of 41.9 billion pounds.

``At the end of the day there was excess liquidity in the money markets where bank reserves were larger than bank borrowings,'' Barclays's Smith said, referring to Aug. 29.

U.S. Subprime Losses

The facility has been used 19 times since the middle of 2006, according to the Bank of England Web site. Only four of those loans were for more than 1 billion pounds. The biggest use of the facility was when banks borrowed 5.93 billion pounds over three consecutive business days June 28 through July 2.

Losses in the U.S. subprime mortgage market have spurred a sudden increase in corporate borrowing costs globally. Companies that depend on commercial paper, debt due in 270 days or less, face fund shortages as investors refuse to buy debt secured by assets. The crisis has prompted the U.S. Federal Reserve and the European Central Bank to place extra money into markets since Aug. 9 to prevent a breakdown in lending.

Barclays said today it will lend money to a $1.6 billion debt fund run by London-based asset manager Cairn Capital after it was unable to raise money in the credit markets. The loan will be used to refinance asset-backed commercial paper as it matures. The fund owns U.S. securities mostly backed by home loans.

`Highly Unusual Situation'

Barclays shares fell 3.6 percent on Aug. 28 on concern about losses tied to failed debt funds. The company rebutted a newspaper report it had provided funding to an investment unit for Landesbank Sachsen Girozentrale, the Leipzig, Germany-based public lender squeezed by the credit crunch.

``We are clearly in a highly unusual situation and at present it is difficult to see how will be resolved and how long it may last,'' said Simon Willis, an analyst at NCB Group in London who said his ``buy'' rating on Barclays is under review. ``Investment-banking profits will clearly come under considerable pressure in the second-half.''

Barclays agreed to buy Amsterdam-based ABN Amro Holding NV for about 61.3 billion euros ($83.6 billion) in April in the biggest banking takeover. It is competing against a higher joint bid led by Royal Bank of Scotland Group Plc, the second-biggest U.K. bank by market value after HSBC.

To contact the reporter on this story: Jon Menon in London Jmenon1@bloomberg.net .

Last Updated: August 31, 2007 13:09 EDT

		Email this article Printer friendly format