Barclays may have boxed itself into a corner?

The bank has been relentlessly upbeat about the hit it has taken from the credit crisis. Wrongly so, argues the City. Philip Aldrick and Katherine Griffiths report in The Telegraph:http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/...

Extracts:

The main problem has been scepticism about the hits Barclays has taken on its "toxic" treasury assets, such as sub-prime mortgages and collateralised debt obligations. But Diamond and Varley have not helped matters with limited disclosures on sub-prime related writedowns. Analysts are in no doubt that Barclays is being more optimistic than peers. Had Barclays marked all its assets as conservatively as RBS, it would be nursing an additional £8bn of writedowns, according to Citigroup.

Bankers do stress that a bald read-across can be misleading, with Varley himself saying: "Risk management at the different banks is not generic, so you would not expect the marks to be generic." And analysts do accept that Barclays' risk management has been better than most. But the bank's excessive confidence is not convincing anyone. Should one monoline insurer or any of Barclays' leveraged loan debts default, it would lead to heavy additional writedowns.

Any underwriter will demand thorough due diligence, particularly on the "toxic" treasury assets, with even the typically more relaxed sovereign wealth funds recently turning ultra-cautious. Due diligence threatens to expose Barclays' writedowns to greater scrutiny and will almost certainly lead to more provisions. Cynics say Varley and Diamond are loathe to take the decision because the U-turn could put their jobs on the line.

Varley likes to maintain he has options, unlike RBS and HBOS, but, though Barclays' problems may not be as severe, the pressure for a capital raising is just as great. Now that the others have addressed the issue, Barclays is the only major lender left in the spotlight.

Given that Seegers is desperate to do a deal for a bank in these cut-price markets, Varley's pressures are perhaps even greater than those at rival banks. The coming months will be his toughest test yet.