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Sunday, 29 June 2008

Citigroup warns of Barclays rights issue deficit

By Philip Aldrick
Last Updated: 12:01am BST 28/06/2008

Barclays' £4.5bn fundraising falls about £9bn short of what is necessary to absorb credit-related writedowns and bring the bank's capital in line with European peers, Citigroup claims in a note to clients.

The British bank's shares came in for more heavy selling following the note, dropping to 289½p at one stage yesterday before ending the day down 5¾ at 298p.

Citi analysts said that simply moving Barclays' core tier one capital in line with its closest peer, Royal Bank of Scotland, would require an extra £2.5bn. If Barclays was to write down its credit-related positions to the same degree as RBS the figure "increases to circa £9bn".

Barclays has taken just £1.7bn of writedowns this year, compared with £5.9bn at RBS, leading some to believe that it has not been sufficiently prudent in its assumptions.

The bank thought it had allayed some concerns this week by securing backing from several existing shareholders as well as new ones from Qatar and Japan for its £4.5bn recapitalisation.

One leading institution said: "Investors of some repute have studied the numbers properly and they've decided the shares are attractive enough to buy. That is clearly positive."

Citi estimates that Barclays will have a tier one capital ratio of 5.8pc at the end of 2008, which would be the "ninth worst [of 66 banks] in Europe". It adds that "Barclays has adopted a somewhat unusual accounting practice" with regard to its credit assets.

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