The Scrutineer: Barclays bouncing back

WAS it only nine months ago that Barclays looked adrift, the "loser" in the race to take over ABN Amro, pipped by the Royal Bank of Scotland-led consortium?

Life moves on. Liquidity crunch, credit crunch and balance sheet-bolstering rights issues tumble out of the sector. And Barclays does not look badly-placed.

Its plan to possibly go the placing route, probably via sovereign wealth funds, rather than a pure rights issue, looks pleasingly cat-footed on the hot tin roof that is the banking sector.

And it is why the market marked the bank's shares up 12 per cent before they later closed ahead 3.5 per cent at 329p.

Firstly, any new shares issued by Barclays are very unlikely to be at the deep discounts of other banks.

Royal Bank of Scotland's discount was 35 per cent, HBOS's was 45 per cent, and Bradford & Bingley's was 48 per cent.

Most banking analysts believe if Barclays went to the sovereign funds they would get away with a discount of 10 per cent at worst, and perhaps even be able to issue stock at a small premium to the market price.

The likely clawback mechanism for existing Barclays' shareholders to get a slice of any new issue action also neatly sidesteps the opprobrium B&B attracted through bringing in its new shareholder, Texas Pacific, without such a pre-emptive offer for shareholders.

And such a placing with blue-chip funds (possibly including existing Barclays' shareholders, China Development Bank and Temasek) should lead to less of the "shorting" of shares that have bedeviled other recent cash calls and driven the market share prices lower.

The latter led to the Financial Services Authority's intervention last Friday.

Barclays is expected to raise at least 4 billion to strengthen its balance sheet. Welcome, but it was not just that such a fund-raising is now under "active consideration" that sent Barclays' shares higher.

In what was essentially another trading update as well, Barclays said profits in its global retail and commercial banking divisions had shown strong growth in May compared with May 2007. Profits in investment banking and investment management were in line with a year before, it said.

In other words it looks virtually certain no further nasty stuff from the provisions woodshed is likely to scar Barclays' interim results six weeks or so hence.

In the current turbulent banking climate that is what the market wants to hear.

Next up in the banking sector this week will be HBOS, due to issue a trading update alongside a prospectus for its own more conventional 4bn rights issue.

There has been much speculation about HBOS's loan and equity stake exposure to the balance sheet-ravaged housebuilding sector, including large holdings in Crest Nicholson and McCarthy & Stone, and unspecified stakes in the likes of Miller Group and Tulloch.

This is quite apart from the bank's market-leading position via Halifax in the troubled mortgage market.

It will be interesting to see if HBOS believes the concerns have to be addressed head-on given the confidence-factor needed to get the issue away.

UNLESS apocalypse strikes and we all start trading cows and vegetables again, the business of making banknotes and cash machines is probably as good as it gets regarding defensive stock market sectors. Shares in De La Rue, the world's biggest banknote printing company, have reflected this solidity amid the wider market volatility of recent months.

The group's shares have outperformed the FTSE All Share Support Services index by nearly 10 per cent since the start of 2008.

It got much better for De La Rue's investors yesterday as the company decided that in the current tough climate it is better to return money to shareholders than do anything strategically grandiose. De La Rue said it had agreed to sell its Cash Systems business to private equity firm Carlyle Group for 360 million in cash.

As a result it will boost the sum it is committed to returning to shareholders from 160m to 460m, equivalent to more than 3 a share.

Even better, De La Rue said it plans to hike significantly its level of dividends following the sale. The strategy looks sound as a pound.

SMALL BUT BEAUTIFUL

Albany capitalises on Chinese links as profits triple

INVESTMENT firm Albany Capital said first-half pre-tax profit more than tripled after a strong performance at its core investment portfolio, in line with expectations.

Pre-tax profit rose to 727,316 for the six months ended 31 March, 2008, compared with 226,046 a year ago. Total revenue rose to 1.2 million from 99,068 a year earlier.

Albany, which has a market cap of 8.21m, said that it has invested 6.3m in its core portfolio to date, and its net book value at 31 March was 8.9m – up 41 per cent from last time.

Chairman John McLean said: "We remain confident that our investment strategy, which focuses on investments into growing companies with high-quality, local management teams based in China will continue to gain momentum."

Its core portfolio, in which it has invested 6.3m, is structured around the creation of listed cash shell companies, including China Food Company and Ninety.

It said the China Food's new production facility in Shou Guang City would "significantly increase" its production capacity.

The company's consolidated cash reserves at the end of the period were 8.96m.

RUMOUR OF THE DAY

Daimler quashes talk of major deal

DAIMLER, the world's top truck maker and second-biggest premium carmaker, sees no need for a blockbuster takeover, a company source said, pouring cold water on talk that it might be preparing for a major deal.

Daimler – flush with cash after selling Chrysler – has resumed debt issues and temporarily stopped share buy-backs, but these should not be interpreted as signs that it is hoarding funds for an acquisition, said a senior executive.

He dismissed prospects for a major strategic move such as splitting off its trucks business or buying premium Swedish car brand Volvo from Ford.

He said the idea of splitting off the trucks arm came up after Daimler sold an 80 per cent stake in Chrysler last year, but was immediately shot down by top management.