A lobby group for the City's most powerful fund managers has issued its most serious "red top" alert on Barclays' £7 billion capital-raising plans, despite several last-minute concessions made by the bank.

The red top notice issued by the Association of British Insurers (ABI) underscores its "grave concern" at how Barclays has treated its longstanding investors.

Institutional shareholders believe that Barclays has given preferential terms to two Middle Eastern investors in exchange for £5.8 billion worth of capital.

Qatar Holding LLC is investing £2.3 billion in the UK bank and Sheikh Mansour Bin Zayed Al Nahyan is injecting £3.5 billion.

While today’s alert from the ABI is not a recommendation that shareholders vote against the proposals, it is widely interpreted as such by London's investment community. It represents a significant hardening of the ABI's stance. Last week, it issued an amber alert, pending discussions with the bank on Friday.

Barclays today offered a sop to angry investors by persuading the two Middle East investors to give up £500 million worth of reserve capital instruments in the bank and make them available to institutional shareholders.

At the same time, Barclays said that its entire board would "exceptionally offer themselves" for re-election in April next year, and confirmed that its executive directors would not be paid any bonuses for 2008.

Bob Diamond, president of Barclays Capital, was Barclays' best paid executive last year, receiving £21 million in cash and shares. This year he will receive his basic salary of just £250,000, which is unchanged since January 1999.

However, the City balked at today’s concessions, sending shares in Barclays down more than 8 per cent, or 14p, to 140.5p.

The bank said this morning that it has held meetings with shareholders, describing the discussions as "constructive", adding: "The board of Barclays has listened carefully to shareholders' views."

But commenting on today’s changes, one of the bank's big institutional shareholders, said: "This is the price for not voting the deal down but it's a complete nonsense..

"Barclays could hardly have seriously considered paying executive bonuses this year but most shareholders don't think that this is about remuneration, it's about the right to take part on the same terms."

Another said: "I can't really see how anything has changed. They haven't actually given shareholders the same exposure. They have stripped out the warrants and there are no fees attached."

Over the next couple of days, institutional investors will be contacted by brokers to see if they want to buy any of the £500 million worth of reserve capital instruments, which are special shares that carry a high interest rate of 14 per cent.

It is understood that if demand from investors outstrips the £500 million on offer, the Middle East investors will not make any more reserve capital instruments available. Instead, the sum will be divided up on a pro rata basis between those shareholders who want to buy the shares.

Peter Montagnon, the ABI's director of investment affairs, said: "Shareholders will have to weigh up all the relevant factors, including the consequences of rejection for Barclays and the wider banking system.

"The board should not therefore assume that votes in favour of the proposal constitute support for the way it has approached the issue.

"The red top establishes a firm basis of principle for further dialogue with Barclays and other companies in future."

The alert means Barclays has until the end of this week to consider reworking its capital-raising plans for a second time or risk a potential catastrophic revolt by its owners. Shareholders vote on the fundraising on Monday.

Barclays was criticised for shunning the Bank of England's £37 billion bailout of high street banks last month, in favour of raising funds from Middle Eastern investors. Critics said the cost of the finance, effectively at an interest rate of 14 per cent, put a high price on independence from the Government.

Analysts reckon the extra cost of the Middle Eastern capital-raising, when compared with the Government's offer, amounts to £3 billion.

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