Bank of England called to help in-the-red Barclays

Aug 24 2007 by Alistair Houghton, Liverpool Daily Post

Generic money/business pic _158

BANKING industry giants Barclays and HSBC have become embroiled in a row over an emergency funding request from the Bank of England after HSBC reportedly denied forcing its rival into the red.

HSBC is understood to be angered at reports suggesting it is being accused by Barclays of missing a scheduled payment, causing Barclays to tap into the Bank of England’s crisis fund for a £314m loan on Monday night.

Barclays, which employs 800 people in Liverpool through its Barclaycard division, is thought to have made the request from the Bank to cover a shortfall.

It attracted significant attention, given the concerns over funding amid the current tightening in credit markets worldwide.

Both banks are declining to comment, but reports yesterday suggested HSBC was denying any blame, instead maintaining it was approached by Barclays for a last- minute loan with too little time to complete the transaction before the Bank of England’s deadline.

It is thought Barclays asked HSBC for funding at 4.15pm, just five minutes before the cut-off point by which banks must ensure their accounts with the Bank are in the black.

HSBC is said to have been unable to complete the paperwork, with the transaction itself taking around three minutes to complete, leaving Barclays to call on the Bank’s standing facility.

It is unclear why Barclays was short by £314m, or why it was unable to finance the loan from other internal sources or reserves at its disposal.

Sources at both banks have been keen to play down the significance of the move, saying these transactions are made regularly and that banks draw on the crisis fund two or three times a month.

But the move marked the first time the Bank’s standing facility was used since the recent turmoil began more than a month ago, creating fears it was another example of the widening global credit problem.

It also came after one of Barclays’ fellow “big five” UK banks, HBOS, confirmed it had stepped in to support one of its in-house funds that had been struggling to finance itself due to the credit tightening.

Halifax-parent HBOS said it would provide financing to Grampian, which has assets worth around 37billion US dollars (£19bn), to help the division repay a maturing debt “until such time as market pricing improves to a level acceptable to HBOS”.

alistairhoughton