Barclays yesterday derided the scrip dividends paid by rival banks, saying that it understood investors’ desire for cash.

Unveiling the bank’s first-quarter trading update, John Varley, chief executive, called scrip dividends an oxymoron and ruled out paying Barclays shareholders in stock.

“A scrip dividend isn’t really a dividend. We’re clear about what our shareholders like. They like dividends and dividends mean cash,” he said.

Royal Bank of Scotland (RBS), HBOS and Bradford & Bingley (B&B) said recently that they would pay their interim dividends in shares, as they announced rights issues worth a combined £16.3 billion. UBS, the troubled Swiss bank, will also make its half-year shareholder payment in stock.

Barclays withstood pressure to raise fresh capital, despite revealing a further £1.7 billion in writedowns on its credit investments and admitting that its capital cushion had fallen even further below target. The bank has said that instead of raising extra capital, it could increase its ratio – which is used by regulators to determine the banks’ financial strength – by cutting risky assets or increasing profits.

RBS, HBOS and B&B opted for rights issues to take their core equity Tier 1 ratios above 6 per cent, which they said was essential in volatile markets. But Mr Varley was scornful of such targets and said that a few months of stable stock markets would raise questions about their rush to issue equity.

“Six per cent isn’t an eternal truth,” he said. “You should be appropriately begrudging in your capital issuance. If there were three months of stability in the market, I think there would be a lot more questions about share issuance so far.”

However, he did not rule out some form of capital raising: “We’re not taking any of these options off the table.”

Barclays has targeted a 5.25 per cent core equity ratio, but last December it was at 5.1 per cent and yesterday it gave warning that it would be even lower by June 30. Alex Potter, banking analyst at Collins Stewart, said that this could mean a ratio of 4.9 per cent, making Barclays the most weakly capitalised UK bank.

Chris Lucas, the bank’s finance director, said that financial regulators expected capital ratios to increase over time but that the Financial Services Authority was “aware of our plans and intentions”.

Pretax profit for the three months to March 31 compared with the same period last year was up at Barclaycard, the credit card business, and also rose in the international retail and commercial banking business. But it was down in UK retail banking and commercial banking because last year’s figures were flattered by property sales.

Barclays Capital, the investment bank, was profitable in the first quarter and through April, but will not beat last year’s record-breaking pretax profit. Profits were down at Barclays Global Investors, the fund manager, but up at Barclays Wealth, the wealth management division.

The bank’s £1.7 billion writedown, on top of a £1.6 billion loss last year, was offset by an accounting gain of £700 million from the deterioration in the value of its own debt. However, about £500 million of this gain was wiped out in April. Barclays did not write off any further value on its £7.3 billion leveraged finance portfolio, which took a £190 million hit last quarter.

— Ben Bernanke, Chairman of the US Federal Reserve, said that recent volatility in global financial markets underscored the need for banks to hold substantial capital buffers. Mr Bernanke told a Chicago banking conference: “I strongly urge financial institutions to remain proactive in their capital-raising efforts”. He also praised the role of sovereign wealth funds in propping up banks’ balance sheets.

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