Barclays Seeks Funds from the Middle East

Barclays (BCS), like most large banks, has been ordered by British Treasury to raise billions in new capital, and made the decision to do so by turning to the Middle East.

Barclays is trying to show that it is far too strong and well equipped to be bailed out by British taxpayers but has gone forth in efforts to raise 7.3 billion pounds ($12.1 billion) from investors.

The largest portion of this capital will be coming from the Royal Families and State Funds of Qatar and Abu Dhabi. Together they will end up owning 31% of the British Bank.

Barclays states that the capital infusion from the Middle East is a more attractive option than that put forth by British Treasury, but many shareholders are upset at the move given that Middle East investors were offered such a large portion of equity at a cost far below current share prices. It is also pointed out that the money received from the Middle East will be more expensive than if Barclays was to participate in the Government rescue plan.

John Varley, Chief Executive, responds by citing that opting for partial nationalization by Gulf States is a way to protect Barclays commercial freedoms that he felt would have otherwise been in jeopardy if controlled by British Treasury.

A note that might relieve shareholders somewhat is Barclays' release stating that profits have increased for the first 9 months of the year, an amazing feat given the recent banking environment and disastrous numbers expected to come out in the weeks ahead from most of the UK's major banks.

Disclosure: No position in Barclays (BCS). Long Position on S&P Financial sector (XLF).