Barclays Plc's $3 billion of new contingent capital notes,securities designed to ensure taxpayers aren't forced to pay forbanks' errors, fell for a second day.

The 7.625 percent subordinated 10-year notes were priced at facevalue and have dropped 1.55 cents on the dollar to 98.45 since thesale closed two days ago, according to Jefferies International Ltd.The notes will be written down to zero if the U.K.'s second-largestlender has losses that reduce its core Tier 1 equity ratio to 7percent or lower.

The securities were marketed globally and attracted orders ofmore than $17 billion, with most coming from Asia, Mark Harmer, thehead of developed markets credit research at ING Groep NV inAmsterdam, said in a client note. Its size and relatively highprice leaves it vulnerable to short sellers, according to PaulSmillie, a Singapore-based bank credit analyst for ThreadneedleAsset Management.

“Barclays is a monster of a deal so it's going to be the mostliquid thing out there for some time, and it's easy to short,”Smillie said. “When Asia closed the Asian retail bid disappearedand U.S. fast money used it as a simple short.”

In a short sale, an investor sells borrowed securities in a betthey can be repurchased at a lower price.

The 7 percent trigger for a complete write-off, rather thanconversion to equity, makes Barclays's bonds more vulnerable toloss than previous issues of contingent capital instruments.

“The bond was priced and structured with an eye to the Asianretail market,” said Harmer at ING. “That's left little room formaneuver now that U.S. and European institutions appear to besetting the pace.”

S&P called the Barclays notes “going-concern” capital,designed to keep the lender in business as it seeks money torecover. They are a product of the 2008 financial-sector crisis,when debt investors were made good while banks had to be propped upby governments to prevent contagion to the wider economy.

Barclays would have to lose about lose 10.25 billion pounds($16.3 billion) to trigger the write-down, according to SimonAdamson, an analyst at independent debt research firm CreditSightsInc. in London.

ABN Comparison

The price set for the Barclays contingent note contrasts withthat of ABN Amro NV's 1 billion euros ($1.27 billion) of 7.125percent bonds due 2022. While both form part of the issuer's Tier 2capital, ABN Amro's are less risky than Barclays's, because theydon't have the writedown feature that could cause buyers to losetheir entire investment. That's reflected in a BBB+ rating atStandard & Poor's, against BBB-, two steps lower, for theBarclays bonds.

The ABN Amro bonds were priced at 99.589 cents on the euro toyield 7.18 percent, compared with the 7.625 percent yield on theBarclays deal. They are now quoted at 112.1 cents to yield 5.47percent, according to Bloomberg generic prices.

UBS AG's 7.625 percent contingent notes due 2022 were alsopriced at 100 at issue in August. The notes are also less riskybecause they have a 5 percent trigger, meaning losses have to eataway more capital before they are triggered, giving the bank moretime to raise cash to prevent the writedown.

The UBS bonds, rated BBB- at S&P, are quoted at 108.72 centsto yield 6.4 percent, Bloomberg generic prices show.

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