Barclays PLC's (BCS) capital may get a boost from the sale of its Barclays Global Investors money manager to Blackrock Inc. (BLK), but it comes at the expense of earnings, analysts said Friday.

The U.K.-based bank is selling BGI for $13.5 billion (GBP8.2 billion), or a net gain of GBP5.3 billion - part made up of cash, and part made up of a 19.9% stake in Blackrock - that will boost the bank's core Tier 1 ratio to 8% from 6.5% at year-end.

But analysts said that at a time when a weaker economy is driving impairments up, and as the recent boom in capital markets revenue is expected to level off, Barclays' earnings will no longer have the benefit of what was seen as a relatively stable revenue flow from BGI.

Fees earned on assets under management do, indeed, fluctuate with the value of those assets in what has been a troubled market, but NCB Stockbrokers analyst Simon Willis said that "the point still stands" that BGI's contribution has been relatively stable.

In 2008, BGI earned Barclays a pretax profit of GBP595 million, down from GBP734 million, hurt in part by an 8% appreciation of the U.S. dollar against the British pound. Assets under management were flat in pounds, however, as exchange-rate movements made up for most of the negative market valuations.

RBC Capital markets analysts are also concerned about what the sale means to Barclays' earnings, saying that having sold off what was a business that produced a "steady stream income," it will have to rely more on earnings from business - such as the U.S. investment banking business that Barclays acquired last fall from Lehman Brothers - that is more directly affected by capital markets volatility.

While Barclays concedes that the deal is dilutive to earnings, with BGI having contributed 15% to pretax profits in 2008, it says fee income will only fall to 31% of group revenue from the current 35%-36%.

Moreover, it says the dilution will be partially offset by potential revenue stemming from its planned cooperation with Blackrock, and sales of Blackrock products to Barclays customers and vice-versa.

NCB's Willis said the lost revenue likely won't be recovered within the next couple of years, but the cross-selling should help in the longer term.

He said Barclays' management made a lot out of the current regulatory constraints in the U.S. that limit cross-selling between investment banking and asset management customers.

Disposing of BGI, and keeping it at an arms' length by not having more than 5% of the voting rights in Blackrock, as stipulated in this deal, allows Barclays to sell investment products to customers that previously were off-limits due to the regulation.

Bob Diamond, head of Barclays Capital, said Friday that "the combination of lower ownership and sophisticated technology means that there will be extra flows (for BarCap) of hundreds of million of dollars per year."

CreditSights, meanwhile, said that while Barclays has done its best to put a positive spin on the deal, "the bottom line is that it is sacrificing stable long-term earnings for an immediate boost to income and capital."

NCB's Willis said that overall, the deal makes sense in the current environment, where focus is on having capital strength, even if it is dilutive to earnings, and the price "is a good one." Willis has a reduce rating on Barclays.

Keefe, Bruyette & Woods analyst Mark Phin agreed: "While strategically we'd rather they'd held onto BGI, we think that's a price worth paying for the capital."

"Overall, we view the transaction positively, but with the details widely speculated and more earnings dilution than we had anticipated, the slight share price weakness is understandable," Phin said. He has a market perform rating and 270 pence target price on Barclays.

Following the disposal of BGI, Barclays consists of both U.K. and global retail and commercial banking, wealth management, and investment banking at Barclays Capital. BarCap was the single biggest revenue contributor in 2008, although its overall profit contribution was depressed by write-downs and impairments.

Unlike its domestic peers, Royal Bank of Scotland Group PLC (RBS) and Lloyds Banking Group PLC (LYG), Barclays sought the help of private investors to boost its capital ratios, thereby avoiding government ownership

At 1251 GMT, Barclays shares were down 11.5 pence, or 3.8%, at 293 pence, giving it a market capitalization GBP24.8 billion.

Company Web site: www.barclays.com

-By Ragnhild Kjetland; Dow Jones Newswires; +44 207 842 9268; ragnhild.kjetland@dowjones.com