It’s more than just a little embarrassing for a bank to be short of cash. But that seems to be the predicament of Barclays, one of the two suitors for ABN Amro.

Faced by a strong challenge from a consortium led by the Royal Bank of Scotland, Barclays had to first sweeten its offer for ABN Amro by selling part of itself to the China Development Bank and Singapore’s state-owned investment firm Temasek for a total of $18.52 billion. Even then, Barclays was still looking around for means to raise still more cash because its revised offer of $93.3 billion (37% cash) was still lower than the rival consortium’s $98.2 billion offering which constituted 93% cash.

Barclays shareholders appeared nervous that the bank was getting into a bidding war it couldn’t afford. And plumb smack in the middle of all this, Barclays saw $400 million of its investments in two Bear Sterns hedge funds reduced to completely worthless paper almost overnight.

As Bear Sterns have stated that one fund has completely closed and the other is currently worth 9 cents to the dollar, there doesn’t seem to be any room even for a negotiated settlement. Which leaves litigation as the only option for Barclays, if it wants to try and recover the money.

Don’t know if they want an expensive litigation on top of everything else at this juncture.