Aug. 7 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, said first-half profit fell 34 percent as securities trading declined and credit writedowns increased.

Barclays dropped as much as 2.6 percent in London trading today after it said in a statement that net income fell to 1.72 billion pounds ($3.4 billion), or 26.2 pence a share, in the first six months of the year. While profit exceeded analysts' estimates, Barclays took credit-related writedowns of 2.8 billion pounds in the first half, more than the 2.3 billion-pound average estimate of five analysts surveyed by Bloomberg.

The Barclays Capital investment bank run by President Robert Diamond had pretax profit of 524 million pounds, down 69 percent from 1.7 billion pounds in the year-ago first half. The unit's losses on securities tied to U.S. subprime mortgages reflect a ``difficult environment'' and add to writedowns of 2.3 billion pounds in 2007. Edinburgh-based Royal Bank of Scotland Group Plc forecasts credit-related losses of 5.9 billion pounds this year.

``They have written off significantly more than they flagged in June, and still the profit has met consensus,'' said Simon Maughan, a London-based analyst at MF Global Securities Ltd. who has ``buy'' rating on the stock. ``These are bad results, but in relative terms they are pretty decent.''

Barclays has said it doesn't need additional capital after raising 4.5 billion pounds in a share sale to investors and sovereign wealth funds last month. The proceeds lifted its so- called equity Tier 1 capital ratio, which measure a bank's ability to absorb losses, to about 6.3 percent.

That ratio will drop to about 5.8 percent as the bank spends money to expand in the U.S. and Asia, Chief Executive Officer John Varley, 52, told reporters today.

Shares Decline

Barclays dropped 4 pence to 365 pence at 8:10 a.m. in London, valuing the bank at 29.7 billion pounds. The company, which relied on securities trading for a third of profit last year, is down 26 percent in London trading this year on concerns about writedowns and capital adequacy. That compares with a 21 percent drop for the eight-member FTSE 350 Banks Index.

Barclays's first-half profit beat the 1.5 billion-pound average estimate of 11 analysts surveyed by Bloomberg. U.K. consumer banking rose 6.8 percent to 690 million pounds as mortgage revenue increased. Profit at the credit-card unit rose 30 percent to 388 million pounds.

Profit at the bank's South African Absa unit rose 10 percent to 298 million pounds, while asset-management profit rose 15 percent to 265 million pounds. Bad loans, including customer defaults and credit losses at Barclays Capital, more than doubled to 2.4 billion pounds, exceeding the 1.8 billion-pound average estimate of 10 analysts.

`Fragility'

``This is as tough an environment as I have known in the 25 years I have been in this business,'' Diamond, 57, said in a conference call with reporters. ``We still have some fragility in the financial system. People are looking to see the bottom of the U.S. housing market.''

Barclays, like RBS, the U.K.'s second-biggest bank, is also selling assets to boost capital. The bank will book a gain of 330 million pounds on the sale of its life-insurance unit for 753 million pounds to Swiss Reinsurance Co., it said earlier this week. Banks and brokerages have posted $493 billion in losses and raised $356 billion in capital since the credit crunch started a year ago.

RBS, led by CEO Fred Goodwin, may report a first-half loss of 1.16 billion pounds ($2.3 billion) tomorrow, according to the average estimate of 10 analysts surveyed by Bloomberg.

About a third of RBS's credit losses this year were tied to the acquisition of Amsterdam-based ABN Amro Holding NV's investment banking unit. RBS and partners Banco Santander SA of Spain and Fortis of Belgium outbid Barclays last year for ABN Amro, in what was the biggest banking acquisition in history.

Barclays reiterated it will pay a dividend of 11.5 pence a share in cash for the first half, unchanged from last year, it said. RBS and HBOS plan to pay a first-half dividend in stock to save capital.

To contact the reporter on this story:
Ben Livesey in London at 
blivesey@bloomberg.net

Last Updated: August 7, 2008 03:27 EDT