Is this as good as it gets for Barclays Capital?

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Barclays Capital isn't having a good week. No sooner had we said that it might pay very big bonuses than JP Morgan issued an equity research note suggesting that it's massively undercapitalized and its revenues will fall very soon.

We have belatedly obtained a copy of this note, which appears to have precipitated a 3% drop in Barclays' share price. It does not paint an entirely pretty picture. In particular, it says that:

· BarCap will need around three times its current level of economic capital by 2010

· BarCap revenues will peak this year and decline in both 2010 and 2011 as the bank adjusts to increased liquidity requirements and pulls back from risky businesses.

Source: JPMorgan (click to enlarge)

BarCap can draw solace from the fact that JP Morgan's estimates are at odds with Morgan Stanley's, whose analysts expect its revenues to keep increasing through to 2011. However, if JP analysts are right, there are a few places to be in Barclays Capital, and they are cash equities, prime services and M&A; commodities, rates and FX look less promising.

Slightly ominously, JP Morgan analysts are also predicting a marginal reduction of around 840 in average staff numbers at BarCap between now and 2010. More promisingly, however, they expect profits to remain consistent between 2009 and 2010 before rising in 2011, and that 'costs per employee are likely to increase significantly.'