Barclays downplayed the possibility of a rights issue today but could raise capital by reining back its riskier activities or increasing profits, the bank told shareholders at its general meeting this morning.

Britain's third-biggest bank has been fighting off rights issue speculation since Royal Bank of Scotland revealed a £12 billion capital raising to prop up its balance sheet.

At today's annual general meeting, John Varley, Barclays chief executive, told investors that the bank would remain an active manager of its balance sheet but refused to be drawn on further writedowns.

Earlier in the day, Mr Varley said that disruption in the financial markets had hit Barclays Capital and Barclays Global Investors, which meant results for the first three months of this year were significantly down on the same period last year.

Pressed by shareholders on a rights issue, Marcus Agius, chairman of the bank, said that there were three ways that Barclays could increase its Tier 1 capital, which is a key measure of financial strength - by growing its profits even more quickly, by being more conservative in its operations or by seeking cash from investors.

"Firstly, and the most natural way, is by retained earnings. And as we have already said, we are achieving earnings," Mr Agius said. "The second point is by managing our balance sheet, and we're doing that. The third option is raising new equity, which we did last year."

China Development Bank and Temasek, the Singaporean wealth fund, last year paid 720p per share for 3 per cent and 2 per cent respectively of the bank, which helped Barclays fund its unsuccessful bid for ABN Amro. Shares in Barclays were at 452.75p, down 3p, at 4.30pm. In a letter to staff, Mr Varley is thought to have emphasised that the bank was likely to pursue all other options before opting for an outside capital raising.

Group pre-tax profit for January and February was in line with last year but trading conditions were tougher in March, John Varley, the chief executive, said, which meant that profit for the first quarter would be below that of last year. However, Mr Varley said that first-quarter profits at the bank's global retail and commercial business were well ahead of the first quarter of 2007.

Questioned about the bank's credit crunch writedowns, which hit £1.6 billion for 2007, Bob Diamond, Barclays president, who runs the bank's investment banking, asset and wealth management businesses, said that he was comfortable with Barclays' exposure to leveraged finance. The bank gave no other hints about possible writedowns, with more detail expected to come in its interim management statement on May 15.

Mr Varley said that the bank's Tier 1 capital ratio was 7.6 per cent at the end of 2007, with a core equity Tier 1 of 5.1 per cent. Barclays is ahead of its own Tier 1 ratio target and behind its core equity Tier 1 target. The bank is below the sector average for Tier 1 of 8.6 per cent and core equity Tier 1 of 6.6 per cent. Mr Varley said that he hoped to get to a 5.25 per cent core equity Tier 1 ratio this year.

Royal Bank of Scotland (RBS), whose Tier 1 and core equity Tier 1 ratios are the lowest of all the banks in Europe, was this week forced to announce a rights issue to bolster its capital cushion. At the same time, RBS wrote down a further £5.9 billion worth of credit assets, on top of £1.4 billion last year.

Alex Potter, banks analyst at Collins Stewart, said that, using RBS as a proxy, he expected Barclays to write down £6.2 billion for the first quarter. He said: "A further circa £2 billion is needed to hit an end-08 core equity Tier 1 of 6 per cent, taking the possible size of a rights issue towards £8 billion".

Mr Potter downgraded Barclays from a 'buy' recommendation to a 'sell'. "Barclays has performed well year-to-date relative to RBS and UK domestic banks, but we now feel it is time to cut positions for safety," he said.

But Mr Varley urged investors to support banks as they continued to take measured risks. He said that just because some banks had taken risks and got them wrong — which resulted in billions of dollars in losses during the global credit crunch over the past nine months — did not mean that the financial sector should stop trying to innovate.

"It would be bad for the world if we were to conclude that banks should stop taking risk," Mr Varley said. "The example of the Japanese economy between 1990 and 2000 illustrates what I'm talking about.

"The Japanese banks' sense of risk aversion overtook the financial system and that led to a decade of economic stagnation as the banks stopped lending."

Barclays has already said that it would borrow from the Bank of England's new £50 billion funding facility, which was set up this week to inject liquidity in the UK mortgage market. The bank will give an interim management statement, updating the market on its first quarter trading, on May 15.

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