Barclays recovers after a week of bad headlines

Barclays was recovering from a week of bad headlines, denials and late-night statements on Friday, as analysts said there was little substance to the frenzy and few harbored genuine worries over the bank's health.

But after a week most investors have written off as bad luck -- and with concern growing over the impact of credit turmoil on profits -- scrutiny over its future moves is set to increase.

Barclays, whose investment banking arm has reported stellar profit growth over the past decade, began the week by denying reports it had hundreds of millions of dollars of exposure to highly leveraged debt vehicles arranged by Barclays Capital.

Two days later, Britain's third-largest bank tapped the Bank of England's emergency reserves for almost 1.6 billion pounds ($3.2 billion) -- its second appeal to the lender of last resort in under two weeks, according to a source close to the matter.

The bank did not confirm the overnight loan but issued a statement reassuring investors it is flush with liquidity.

In times like these, when there is an absence of information, people jump all over whatever there is to try and draw conclusions, analyst Simon Maughan at MF Global said.

The Bank of England's liquidity window is ignored 95 percent of the time. I don't think it is right to jump up and down and make a big thing about it right now.

Use of the Bank of England's emergency facility, which has already been tapped 14 times since the start of 2007, does not necessarily mean an institution is in trouble -- but analysts said the furor was indicative of market jitters, with any further loans unlikely to pass unnoticed.

At the moment, you can put it down to bad luck, but any more than twice starts to raise questions, one industry analyst said. It's like consumers going over their overdraft limit -- if you do it repeatedly, you are clearly not a particularly good steward of your own money.

ONCE IS MISFORTUNE, TWICE...

One of the most innovative players in the debt market, Barclays has been instrumental in the development of highly leveraged structured investment vehicles known as SIV-lites, which have become the focus of market concern in recent weeks as two funds have had to wind down.

But in an indication that not all SIV-lite troubles may end in destructive firesales of assets or wind-downs, Barclays said on Friday it and hedge fund Cairn Capital had restructured a troubled SIV-lite into a collateralized debt obligation after it was unable to raise short-term funding.

Barclays, which says it has fully hedged its funding, will provide $1.6 billion to bail out the fund.

Barclays shares -- down 13 percent since the start of July, making it the worst performing bank stock after mortgage lender Northern Rock -- were up 1.6 percent at noon on Friday, trading at 607 pence, just shy of last Friday's 611 pence close.

For all the PR this week, the market has taken a relatively benign view -- and I would share that conclusion, Maughan said.

The value is still far shy, however, of the 794 pence high the bank needs to hit to win the battle for Dutch bank ABN AMRO.

At Friday's prices, the Barclays offer values ABN at 32.3 euros per share -- against 38.1 euros per share under a rival bid from the consortium led by Royal Bank of Scotland. ABN shares were trading at 34.4 euros on Friday.

And the uncertainty has hit the cost of insuring the bank's debt. In an otherwise rallying market, five-year credit default swaps were up 4.5 basis points on Friday at 49.5 basis points, according to Deutsche Bank, meaning it costs 49,500 euros a year to insure 10 million euros of debt against default.

Like credit default swaps on other banks, prices on Barclays debt protection have leapt due to the turmoil in the markets. For much of the first half, the price was below 10 basis points.

But Barclays CDS cost more than those on similarly rated peers BNP Paribas or RBS, both hovering in the low 30s basis points.