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Barclays seeks to reassure markets after emergency borrowing, departure of executive

Barclays seeks to reassure markets after emergency borrowing, departure of executive

Barclays PLC, the British bank in a bidding war for ABN Amro Holding NV, sought to calm fears Friday that it faces a cash crisis after borrowing twice in two weeks from the Bank of England's emergency fund.
It also revealed that it had injected US$1.6 billion (euro1.18 billion) into an investment vehicle to rescue it from collapse after it failed to raise money in the credit markets.
A person familiar with the exchange, who was not permitted to speak on the record, said Barclays turned to the central bank for 1.6 billion pounds (US$3.2 billion; euro2.4 billion) as a lender of last resort on Wednesday after a failure in a trading system.
It followed a loan of 314 million pounds (US$634 million; euro466 million) from the same source last week after funds from HSBC Holdings PLC were delayed.
Barclays declined to confirm that it was the bank behind the transaction, but issued a statement noting the use of the standing facility and stressing that Barclays was "flush with liquidity."
Barclays spokesman Alistair Smith said there was a widely reported breakdown in the banking clearance system on that day, and that the standby facility was there to deal with such situations.
"In these challenging times the dramatization of such situations is of no help to markets, their members or their customers," he said.
It is not unusual for the standing facility to be tapped a couple of times a month, but its use has come under the microscope in recent weeks as economists and analysts keep a close eye on liquidity levels following the collapse in credit markets.
Coming on the heels of the resignation of a senior official in charge of a structured finance team at Barclays Capital, Barclays' second loan raised concerns about the bank's position.
Barclays Capital has declined to comment on last week's departure of Edward Cahill, who was head of the European collateralized debt obligation division, which specialized in a product known as SIV-lites, or structured investment vehicles.
It was an SIV-lite fund that Barclays injected funds into on Friday, after several other SIV-lite products it had helped set up were forced to wind down. The money was given to Cairn High Grade Funding I, a vehicle of Cairn Capital, a London-based structured credit specialist that manages about US$9 billion (euro6.61 billion).
SIV-lite products borrow short-term commercial paper and earn money on the higher-yielding returns from the assets, including securities underpinned by U.S. mortgage loans.
Their exposure to the subprime crisis has left them vulnerable _ Standard & Poor's cut ratings on two SIV-lite vehicles by up to 17 notches last week.
Barclays said that the Cairn fund had to be restructured after it was unable to raise funds in the short-term debt market. The funding will be used to redeem maturing commercial paper, and will stay in place until the underlying securities held by the fund mature over the next four years or so.
Earlier this month, two other SIV-lites arranged by Barclays Capital, Mainsail II and Golden Key, were forced to start selling assets after being unable to raise new financing.
However, the bank said it has fully hedged its exposure to the underlying U.S. residential mortgage-backed securities in the Cairn portfolio.