Analysts are mulling the possibility that HBOS might hand its Australian businesses to National Australia bank in return for the Clydesdale as it seeks to reduce its funding requirements.

Analysts are mulling the possibility that HBOS might hand its Australian businesses to National Australia bank in return for the Clydesdale as it seeks to reduce its funding requirements.

HBOS chief executive Andy Hornby has made it clear that he will consider asset sales as he seeks to take the company on from its recent £4bn fundraising. There has long been speculation that HBOS, which is overwhelmingly UK-focused, might seek to divest all or some of its Australian assets, most notably BankWest which is estimated to be worth £2bn to £3bn.

Analysts from Deutsche Bank yesterday raised the possibility of an asset swap between HBOS and NAB.

"An asset swap with NAB might be a good solution for both sides. Though we wouldn't rule out HBOS making concessions on price or terms in order to conclude a cash deal, we believe an alternative would be for HBOS and NAB to exchange offshore assets (NAB's Clydesdale and Yorkshire for HBOS Australia)."

They said this would allow NAB to exit the UK market, which they think would be popular with investors, and suggested HBOS would benefit from a cut in its loan/deposit ratio from 176% to 171% and the disposal of a "cash and capital-hungry operation".

The pressure on HBOS was illustrated in research published by Collins Stewart yesterday estimating the Edinburgh bank accounts for some 40% of the £285bn funding gap that UK banks have between the loans they have issued and funding from conventional means.

There are worries that it could struggle when the Bank of England's special liquidity scheme, which helps banks by swapping mortgage assets for more sellable paper, closes on October 21.

But analysts at HBOS broker Morgan Stanley in a separate piece of research yesterday played down the impact.

"We do not believe banks will be left without central bank support." HBOS shares fell 2.2% to 303.25p yesterday.

Meanwhile, Royal Bank of Scotland's analysts have cast doubt on the financial strength of rival Barclays.

Barclays fell 3.7% yesterday to 350.25p after Royal Bank banking analyst Ian Smillie downgraded it to "sell".

He praised its "clear and consistent" strategy but highlighted its high level of gearing and said it would need £4.8bn of new equity to bring its capital cushion in line with the investment banking sector.