Barclays may face $13.3 billion capital shortfall

Barclays Plc, the UK’s third- biggest bank, may need to raise as much as £7.5 billion ($13.3 billion) to bring its capital ratio in line with investment banking peers, Royal Bank of Scotland Group Plc said.

While the London-based bank’s so-called tangible common equity is in line with UK banks it’s low compared with rival securities firms, the analysts led by Ian Smillie wrote in a research note to clients today.

“A deeply ingrained performance-led culture facilitated the generation of £8.3 billion of economic profit over the last four years,” Smillie said. “It has, however, also led Barclays to a higher level of balance-sheet gearing than peers, an uncomfortable position in the current environment of financial system de-leveraging and heightened external scrutiny of banks’ balance sheets.” Barclays raised £4.5 billion in a share sale in July to help shore up capital depleted by credit writedowns and fund consumer-banking growth overseas.

The bank’s fund raising lifted its so-called Tier 1 capital ratio, which measures a bank’s ability to absorb losses, to about 6.3 per cent.

The bank’s “large and growing equity shortfall” may mean it has to sell more shares, Smillie said.

More Writedowns : Barclays may post this year a tangible equity ratio, which ignores hybrid bonds, of about 4.8 per cent compared to the average of 6.8 per cent of its peers, Smillie said. The bank’s capital ratio may be eroded by a further £4.7 billion of writedowns and increasing customer bad debts, the analysts said.

Barclays declined 2.6 per cent to 354.25 pence as of 8:23 am in London trading, valuing the bank at £28.9 billion. The stock has fallen 28 per cent this year amid concern about capital adequacy and writedowns at UK banks.

Tangible equity ratio, a measure of capital widely followed in the US, excludes bonds that combine elements of debt and equity. Investors are looking for new ways to judge the strength of banks after financial services companies worldwide wrote down since the beginning of last year almost $510 billion on subprime-related investments.