Can Barclays Deal with its Capital Shortfall Ahead of the Mid-Year Report?

Barclays (NYSE:BCS) is one of three major British banks that will report half-year earnings this week, and the stock kicked off the week on a negative note. Shares fell as much as 3.8 percent on the NYSE on Monday, following news that the financial institution is seeking to raise as much as 5 billion pounds ($7.6 billion) in a rights issue in order to plug a capital hole.

The size of Barclays’ capital shortfall is nebulous — at a minimum of 3 billion pounds, but some estimates put the figure as high as 7 billion — but details should emerge on July 30 with the bank’s mid-year report. The bank reported on Monday that it has been talking with the Prudential Regulatory Authority about its “financial and capital management plans” over the past few weeks.

Analysts are expecting Barclays’ pre-tax profit to fall 600 million pounds to 3.7 billion pounds ($5.7 billion). Britain’s Prudential Regulation Authority, a division of the Bank of England, informed banks at the end of June that they would need in increase their leverage ratios from 2.5 to 3.0 percent to satisfy new regulations. Barclays’s representatives said it would take time to meet the new conditions, but should not be forced to make haste unless regulators were content with the bank slowing its lending practices.

Recently, Barclays announced that the Abu Dabi sheikh who purchased millions of shares during the recession sold his shares. The Sheikh Mansour bin Zayed Al Nahyan put $5.3 billion into the company, which helped it weather the recession, and avoid taking funds from the U.K. government. News of the deal hit the markets this week, and helped drive shares lower.

Royal Bank of Scotland Group (NYSE:RBS) also traded about 2 percent lower on the NYSE on Monday. The bank will report half-year results toward the end of the week. Analysts are expecting pre-tax profit to remain effectively flat at 910 million pounds ($1.4 billion).

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