Shares surge as Barclays says it is in good health but takes hit of £8 billion

In an extraordinary open letter to the Stock Exchange, chairman Marcus Agius and chief executive John Varley said the bank was in good health and did not need to raise new funds from the Government or private investors.

The bankers said profits for 2008, now to be published on 9 February rather than 17 February, will be "well ahead" of the £5.3 billion forecast by analysts. Barclays made £7 billion in 2007.

"We are well-funded and we are profitable," said Agius and Varley in the letter. "Although we have been heavily impacted by the credit crunch, our income generation was at a record level in 2008 and has enabled us to withstand this impact and still produce strong profits."

Barclays' shares jumped 39p to 90.2p at one stage before settling up 28.6p to 79.8p, a rise of 56%. Rival banks also benefited, with Lloyds Banking Group up 9.8p to 59.1p and Royal Bank of Scotland 2.1p higher at 142p.

The Barclays rally followed nine days of heavy selling which saw the shares tumble 72% from 184.6p to a record low of 51.2p amid fears the bank was on the verge of a Government bailout or even part-nationalisation to cover spiralling losses. The shares peaked above 760p in February 2007.

Agius and Varley admitted the letter was "unusual" but said "the turn of events is also unusual".

They divulged the fresh losses of
£8 billion at ­struggling investment bank Barclays Capital "in the interests of clarity and transparency" while the decision to bring the results forward by eight days was to publish "as quickly as possible", given the level of doubt in the market.

Barclays said its tier one capital, a key measure of financial strength, was 9.5% at the end of last year, well ahead of the 6% minimum set by the authorities. That gave it a cushion equiv­alent to some £17 billion of profits.

"This gives us confidence that our capital resources are sufficient to manage Barclays safely and prudently even in these difficult markets," wrote Agius and Varley. "For these reasons, we confirm in this letter that we are not seeking subscription for further capital — either from the private sector or from the UK Government."

Barclays has raised billions from private sources overseas, including the Abu Dhabi royal family and investors in Qatar, rather than turn to the taxpayer for funds.

It today said it has £36 billion of capital and is generating "strong" income from Barclays Capital following the acquisition of Lehman Brothers' American operations.

"Recognising that 2009 is not yet a month old, and that the global economy will remain weak, we can tell you that customer and client activity levels have been high. As a result, we have had a good start to 2009," the letter said.

"In particular, the operating performance of Barclays Capital, benefiting as it is from the now-completed integration of the Lehman business, has been extremely strong."

Alex Potter, banking analyst at Collins Stewart, said: "People should not get too enamoured with all this. Barclays shares are only back to where they were trading last Tuesday."

Barclays shares were battered last week after the Government announced its latest bank bailout plan and RBS admitted it will make a loss of £28 billion for the year.