Jan. 23 (Bloomberg) -- Barclays Plc is trading at a price that indicates investors are ignoring management’s reassurances and giving the bank a 70 percent chance of nationalization, according to analysts at Sanford C. Bernstein & Co.

Barclays dropped almost 14 percent to 51.2 pence today in London, its ninth straight decline. The stock is down 66 percent this month, valuing the bank at 4.3 billion pounds ($5.9 billion).

“The stocks have massive upside if, and notice if, they avoid the perils of full nationalization,” Bruno Paulson, an analyst at Sanford Bernstein in London, wrote in a note to investors today. He has an “outperform” rating on the stock.

Barclays Chief Executive Officer John Varley has tried to calm investor concerns, saying in a broadcast yesterday that the London-based company can tap the U.K.’s plan to help shoulder losses on toxic assets without selling new stock. He also reiterated today the Jan. 16 statement that Barclays will report “solid profit” in 2008 even after writedowns.

Still, Barclays may have to give three investors in the Middle East more than 50 percent ownership under terms of the contracts designed to prevent dilution of their shares, according an analyst at NCB Stockbrokers Ltd.

“It’s highly unlikely that the U.K. government will grant Barclays access to the scheme unless it takes further writedowns,” wrote Simon Willis, an analyst at NCB Stockbrokers in London. “This in turn means it’s highly likely that Barclays will require further capital.”

U.K.’s Biggest Loss

Edinburgh-based Royal Bank of Scotland Group Plc will cede a 70 percent stake to the government after saying Jan. 19 that writedowns of as much as 20 billion pounds will mean the biggest loss in U.K. history. Lloyds Bank Group Plc, 43 percent owned by the U.K., rejected the government’s offer to increase its stake.

The bank’s market value dropped below that of Absa Group Ltd., the lender it has controlled since 2005. Johannesburg-based Absa was valued at $6.1 billion today.

“We constantly monitor share-price movements,” said Abi Jones, an FSA spokeswoman. She declined to comment on Barclays.

Varley, appearing in a broadcast on the Web site of Cantos Communications Ltd., said the bank would prefer to pay cash to use the U.K.’s plan announced this week to guarantee toxic assets. Barclay’s capital buffer is “well ahead” of regulatory requirements, he added.

Barclays said Jan. 16 that pretax profit in 2008 will be “well ahead” of analysts’ average estimate of 5.3 billion pounds. Profit will not be wiped out by writedowns linked to toxic assets, Varley said in a statement posted today on the London Stock Exchange Web site.

‘Little Credibility’

Senior management “aren’t going to survive” if Barclays needs a capital injection from the government, said Julian Chillingworth, chief investment officer at London-based Rathbone Brothers Plc. It manages $21 billion, including Barclays stock.

The company’s Jan. 16 statement “clearly had little credibility with the market, as it’s widely recognized that Barclays has provisioned lightly for its leveraged debt and toxic assets” relative to its peers, said NCB’s Willis.

Varley said in the broadcast there is “no truth” to speculation the government is unhappy with how Barclays has valued some of its assets.

The 319-year-old bank may have to give up more control to Middle East investors if it’s forced to seek additional capital. Abu Dhabi’s royal family and two Qatari investors purchased a 32 percent stake in October after Barclays decided against accepting funds from the British government. Barclays’s agreements stipulate it must offer additional shares at the discounted price to the Middle East group before accepting any money from the U.K.

Cost of Protection

In the event that Barclays issued shares at 40 pence apiece, the bank would almost triple the number of shares issued to Abu Dhabi and Qatar, according to Willis.

The provisions, intended to prevent the dilution of the 32 percent stake, wouldn’t stop the company from taking up assistance from the U.K. government, Barclays spokesman Alistair Smith said by telephone yesterday. Other investors who bought Barclays convertible notes have similar protection, he said.

The cost of protecting Barclays bonds from default rose 9 basis points to 199, the highest level since Oct. 7, according to CMA Datavision prices for credit-default swaps at 3:15 p.m.

Credit-default swaps were conceived to protect bondholders against default and pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

“I’m not that worried at the moment,” said Sariane Kinine, 28, who has an account at Barclays and works at UBS AG in London. “There are problems affecting lots of banks. I try not to let it worry me too much.”

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

Last Updated: January 23, 2009 13:36 EST