Caught

Barclays Plc, has been running in full stride, but today the credit crisis ran them down. Despite reporting positive earnings for it's fiscal first quarter 2008, the bank took it's first big write down on assets damaged by the credit crisis.

Barclays Plc, the U.K.'s third-biggest bank, reported a drop in first-quarter earnings because of 1.7 billion pounds ($3.3 billion) of writedowns and said further losses from the credit markets are possible.

The write downs though contained to the Barclays Capital securities division and relatively smaller none the less piont to the obvious, Barclays isn't just running it's running scared. The bank which to date has so expertly concealed its insolvency is slowing down as the momentum of the credit crisis is building.

Down on the street the next to draw blood was Moodys. The maligned rating agency, frantic for it's own sake unceremoniously cut senior at 'Aa1', to negative from stable, and downgraded the bank's bank financial strength rating (BFSR) to 'B' from 'B+', then issued a statement.

Moody's said the rating action reflects Moody's concern that both earnings and capitalisation levels could come under pressure from Barclays' exposure to sizeable positions in both the trading and banking book of credit market exposures; the weakening economies of the U.K. primarily, but also Spain, where cyclical pressure on asset quality may exacerbate the pressure on earnings.

Deeper cuts mayor may not have been worthy, but the credit crunch is turning the big players, like too many rates in a cage, one against the other.

According to the interim management statement as of March 31, 2008 the bank remained exposed to 4.2 billion pounds of U.S. subprime loans, 4.5 billion pounds of Alt-A loans, 12.6 billion pounds of commercial mortgages, 7.3 billion pounds in buyout loans, 565 million pounds in structured investment vehicle assets and 2.8 billion pounds of insured bonds. Barclays also has 4 billion pounds of residential-mortgage backed CDOs.

Now comes the question of how to bandage that $3.3 open wound. The Street crowd clamorous for a rights issue, but Barclays management politely says not just yet, thank you.

In an interview, Chief Executive John Varley rattled off various spending choices -- from hiring teams of former ABN-Amro employees to buying a bank in Russia -- that demonstrate how Barclays's capital level isn't slowing down its business.

"We understand how much capital we need at any given time," he said.

Now the Street crowd cries in anger "raise your capital, issue your rights". Do it the name of margins they say to justify it, but could be just as likely that other banks don't want to be made to look bad.

Barclays appears to be "in denial," said Tom Rayner, a banking analyst at Citigroup. Mr. Rayner also said Barclays's write-downs seemed meager compared with its peers, given the size of its portfolio of troubled assets. Barclays has said direct comparisons aren't valid because it holds a different mix of assets.

It is difficult to look worse that Mr. Rayner employer, in write downs or anything else. But Barclays remains stolid, $3.3 billion written down none raised.