Jan. 21 (Bloomberg) -- Barclays Plc, the U.K. bank that turned down government funding last year, declined for a seventh straight day in London trading on speculation that it may be forced to take more writedowns and be nationalized.

Barclays, which dropped as much 35 percent earlier in the day, recovered to close down 9.3 percent at 66.1 pence. The shares have lost 57 percent this month, valuing the company at 5.5 billion pounds ($7.5 billion).

“There is genuine fear from shareholders, who see a real risk of nationalization,” said Simon Maughan, an analyst at MF Global Securities Ltd. who has a “sell” rating on Barclays. “The whole rest of the world, operating in the same business as Barclays, has seen significant losses. There is talk that Barclays will bring its results forward to prove its case. Bring it on.”

Barclays said Jan. 16 its 2008 profit will beat analysts’ average estimate of 5.3 billion pounds. The London-based bank run by Chief Executive Officer John Varley said it had net credit writedowns of 2.1 billion pounds for the first nine months of 2008 and declined to take bailout capital from the U.K. Royal Bank of Scotland Group Plc forecast a 2008 loss of 28 billion pounds on Jan. 19 as Britain increased its stake to 70 percent.

“There’s some disquiet as to the fact that their writedown procedure is not the same as other banks that you would have thought are exposed to the same risks,” said Dave Bradbury, who helps manage $6 billion at Canada Life Ltd. in London. “There’s a crisis of confidence” in the banking sector, he said.

Barclays is scheduled to post year-end earnings on Feb. 17, spokesman Alistair Smith said. He declined to comment further.

Toxic Assets

The U.K. government announced plans Jan. 19 to guarantee toxic assets for a fee and gave the Bank of England power to buy 50 billion pounds of securities in the second effort in three months to underpin confidence in the banking system. John McFall, chairman of the Treasury Committee, and the Liberal Democrats urged Prime Minister Gordon Brown today to nationalize more banks.

“Does he not see the extreme danger in any remaining ambiguity in the government’s response?” Nick Clegg, the leader of the Liberal Democrats, asked today in Parliament. Brown should see “that must now mean the full temporary nationalization of our weakest banks without any further delay.,” Clegg said.

Barclays is also being hurt by last week’s expiration of a regulatory ban on short selling, leading to irrational bank bashing, said Robert Talbut, who helps manage $31 billion including Barclays stock at Royal London Asset Management.

“There is clearly a residual uncertainty about the future sustainability of the banks, but my view is that it’s becoming a feeding frenzy,” Talbut said. “Further nationalization wouldn’t be in the national interest.”

‘30% Chance’

Barclays, which acquired Lehman Brothers Holdings Inc.’s North American investment-banking operations last year, raised 7 billion pounds in November, mainly from funds in Qatar and Abu Dhabi. It has cut more than 4,500 jobs this year from its Barclays Capital investment-banking unit, investment-management and wealth units and retail and commercial banking operations.

“If you believe as I do that Barclays has a better than 30 percent chance of surviving without nationalization, they are very cheap,” said Bruno Paulson, an analyst at Sanford C. Bernstein in London who has an “outperform” rating on the stock.

Lloyds Banking Group Plc, which completed the takeover of HBOS Plc this week, also is seeking to avoid further government control. It won’t take up the government’s offer to convert 4 billion pounds of preferred stock to common stock, Lloyds Chairman Victor Blank said Jan. 19. Swapping the shares, which would eliminate dividend payouts of 12 percent a year to the government, would increase the U.K.’s 43 percent stake in Lloyds.

Lloyds rose 0.7 percent at 45.1 pence in London, bringing this month’s loss to 64 percent and valuing the bank at 7.4 billion pounds.

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

Last Updated: January 21, 2009 14:17 EST