More Capital Required*
 Capital adequacy is relative, not absolute — In 1991 Barclays described its
5.9% Tier 1 ratio as being “one of the best in the world”, yet 17 years later it
has announced a record share issue from a starting Tier 1 ratio of almost 8%.
This illustrates one key feature of our view on capital – rather than an absolute
number it is the amount relative to peers and the underlying economic and
market environment that matters.
 Despite raising £4.5bn we believe Barclays may need a further £9bn — Post the
capital issuance we estimate that Barclays will have a 2008E Equity Tier 1 ratio
of 5.8% (9th worst in Europe) and a tangible equity: assets ratio of 1.5% (6th
worst in Europe). Simply moving the Equity Tier 1 ratio into line with RBS
(6.4%) would require an extra £2.5bn, with RBS-style credit write-downs
increasing this figure to c£9bn.
 Barclays Capital profitability under pressure — New disclosure from US
investment banks show Tier 1 ratios in excess of 10%. Capitalising Barclays
Capital at a similar level would not only require virtually all of the group’s equity
but would drive returns below the cost of capital. Although we recognise that
regulators look at the consolidated group position, we have used a valuation
approach which captures the impact of the notional capital deficit.
 We retain our Sell (3M) recommendation; Target Price 275p (from 350p) — Our
simplified sum of parts model shows that capitalising BarCap at an Equity Tier 1
ratio of 8% (still below US peers) and the rest of the group at 6.5% results in a
fair value of 275p per share. This becomes our new price target and represents
1.0x our 2009 tangible book estimate of 274p per share.
 *The last paragraph on page 7 contained a typing error. It should read
‘…classified some assets…’ rather than ‘…reclassified some asse ts…’.

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