Q: What has Barclays done?

A: Barclays announced today that it will raise £7.3 billion from Middle Eastern investors.

This will enable Barclays to increase its cash buffer above the target set by regulators to help banks ride out the global financial storm, without having to participate in the Government's £500 billion banking bailout.

If Barclays had participated in the bailout, the Government would have become a significant shareholder in the bank, with the power to dictate strategy and cut bonuses and dividends.

With million of pounds of incentive payments hanging in the balance, Barclays' executives are likely to be relieved not to have the Chancellor looking over their shoulders.

A: Why seek overseas investment?

Q: Apart from the benefits of self-determination, Barclays is keen to pursue business is emerging markets such as Asia and the Middle East and hopes that even closer relationships with the region will boost its profits as the Western world enters a recession.

The bank also wanted to avoid the danger of having a normal rights issue, which takes about two months to achieve and would have subjected Barclays' share price to huge volatility as shareholders weighed up whether to buy the new shares.

Q: Why not raise money in the UK?

A: There is an added benefit to avoiding a rights issue - Barclays will not have to lay bare its books to the City. Although the bank has insisted that its business is holding up well in the difficult current environment, some commentators have been sceptical. Without a rights issue, these claims will not be put to the test.

But this capital raising is likely to cost Barclays more than it would have to access the Government's cash - the bank is actually having to pay the investors to participate in the process.

It also places more than a third of one of Britain's biggest banks in foreign hands.

Q: What does today's plan mean for existing shareholders in Barclays?

A: The investment of retail shareholders in the company will be devalued when Barclays issues new shares to sell to its Middle Eastern investors, because existing retail shareholders will not be allowed to participate in the capital raising. This is a double punishment, because the new shares are being offered relatively cheaply.

Fund managers, who look after our pensions, will also allowed only to participate in the capital raising on a limited scale, which means that their investments will be devalued as well.

Barclays' decision to boost its balance sheet in this way rides roughshod over the fundamental British principle that existing shareholders should be first in queue in a company's capital raising.

But investors may yet have the last laugh - the deal cannot go ahead without shareholders' approval at a vote on November 24.

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