Nov. 15 (Bloomberg) -- Barclays Plc, the U.K.'s third-biggest bank, wrote down about 1.3 billion pounds ($2.7 billion) of credit-related securities tied to the U.S. subprime-mortgage market collapse.

Net charges and writedowns were 500 million pounds in the third quarter and 800 million pounds in October, Barclays said in a statement today. Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley all announced writedowns in the past month after Moody's Investors Service downgraded $10.3 billion of U.S. collateralized debt obligations, most of them linked to U.S. mortgages.

Barclays is up 12 percent in London trading this week after Chief Executive Officer John Varley told employees that credit- market losses weren't as severe as some analysts were estimating. Barclays followed London-based HSBC Holdings Plc in disclosing information that reassured investors about the size of the losses.

``They came in better than the market expected,'' said Mamoun Tazi, an analyst at MF Global Securities Ltd. in London, who has a ``buy'' rating on the stock.

Barclays shares fell 0.5 percent to 530.5 pence in London, valuing the company at 35.3 billion pounds. The stock has declined 27 percent this year, compared with the 16 percent drop of the Bloomberg Europe Banks and Financial Services Index.

Credit-default swaps on Barclays fell 10 basis points to 55 basis points today, according to Deutsche Bank AG. The contracts decline when perceptions of credit quality improve. A basis point on a credit-default swap contract protecting 10 million euros ($14.6 million) of debt for five years is equivalent to 1,000 euros a year.

Credit Watch

Fitch Ratings said today it may cut the bank's debt rating. It left Barclays's grade unchanged at AA+, the second-highest of 10 possible investment ratings, and said the expansion of Barclays Capital may increase risks and earnings volatility.

The securities unit increased net income and pretax profit for the year through October, Barclays said. Barclays Capital had 1.9 billion pounds of pretax profit for the first 10 months of the year, ahead of the same period last year, it said. The securities unit contributed more than a third of first-half profit.

Barclays booked a gross writedown of 1.7 billion pounds on subprime-related assets and loans for leveraged buyouts. Those were partially offset by gains of about 200 million pounds in both the third quarter and October. The charges and writedowns in October reflected ``rating agency downgrades on a broad range of CDOs and the subsequent market downturn,'' the bank said.

``We have taken the opportunity to draw the line'' on the bank's riskiest credit-related securities, Barclays President Robert Diamond said on a conference call with reporters today. ``The issues in subprime are deep,'' he said.

`Too Cheap'

This year's decline in Barclays shares is excessive in light of today's statement, said Simon Maughan, an analyst at MF Global. the current share price reflects assumptions that Barclays would have to issue new shares to raise capital, now unlikely, he said.

``Barclays's shares priced in a rights issue,'' Maughan said. ``They are two pounds too cheap'' based on today's statement, said Maughan, who estimates that Barclays shares will reach 720 pence.

Barclays trades at about 7.4 times 2007 profit. That compares with the average multiple of 9.5 for the 63-member Bloomberg Europe Banks and Financial Services Index.

``The cautiously positive view of the company is likely to strengthen after the statement,'' said Richard Hunter, head of equities at London-based Hargreaves Lansdown Stockbrokers. Investors may ``recapture some of the 26 percent loss in the share price over the last six months,'' he said.

`Fully Funded'

Barclays has made about 19 billion pounds of credit available to its asset-backed commercial paper conduits, it disclosed today. The units are ``fully funded through commercial paper'' and have not drawn down the credit lines, Barclays said.

There is no further risk of writedowns in U.S. residential CDOs, Finance Director Chris Lucas said on the call. The bank has ``ongoing exposure'' to U.S. subprime assets, Lucas said.

Barclays's securities arm seeks to increase market share in prime mortgage-related securities as well as leveraged loans next year, Diamond said.

Barclays's revenue in the fourth quarter was helped by gains from interest rate swaps, government bonds and foreign exchange, Diamond said. Asia revenue was up 80 percent in the first 10 months of the year, he said.

``The revision of Barclays's outlook to negative reflects our concerns that the continuing expansion of Barclays Capital might expose the group to greater risks and earnings volatility, which could lead to a ratings downgrade,'' James Longsdon, a senior director at Fitch, said in a statement today.

`Wall of Silence'

Barclays's writedown is in line with the Nov. 7 estimate of Sanford C. Bernstein & Co. Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank, may write down 500 million pounds in the second half, the analyst said.

Royal Bank tumbled in London trading on concerns that credit- related writedowns will hurt profit growth. Shares of the bank, scheduled to update investors Dec. 6 on second-half performance, fell 4 percent to 448.5 pence, valuing the bank at 44.8 billion pounds. They are down 32 percent this year.

``Until they also break their wall of silence, the shares will struggle to make any more meaningful progress,'' Hunter said.

HSBC Holdings Plc, Europe's biggest bank, set aside $3.4 billion in the third quarter to cover U.S. defaults, $1.4 billion more than it forecast in July, it said yesterday. The London-based bank also wrote down $925 million on credit-related trades including securities backed by U.S. subprime mortgages. The bank also has $2 billion in subprime residential mortgages still to be securitized, it said.

Barclays has marked its securities to markets ``where we can find them,'' Lucas said. Where there is no market, it has valued them at fair value, he said.

`Triggers'

The writedown of 800 million pounds in October is to accommodate ``triggers'' that may result in further declines in the value of credit-related securities later this year and in 2008, Diamond said.

Barclays's continuing risk in the U.S. subprime markets include CDOs and about 2.6 billion in mortgages held by its EquiFirst unit, which it bought in April this year. The assets have an average loan to value of 82 percent, and 99 percent have first priority in the event of default, Diamond said.

Barclays has written down 70 million pounds on structured investment vehicles and related SIV-lites, companies that are struggling to borrow in the short-term debt markets.

The bank's SIV risks include derivatives it has written, unused emergency funding and bonds it holds on its trading book totaling 700 million pounds at the end of October, down from 900 million pounds at the end of June.

To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.net; Jon Menon in London jmenon1@bloomberg.net

Last Updated: November 15, 2007 13:10 EST