Barclays jumps 20% as bosses eye sale of iShares

Barclays is keen to avoid taking Government cash - even if it means flogging its profitable iShares business...

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Last Updated: 31 Aug 2010

Barclays confirmed this morning that it’s considering a sale of iShares, part of its fund management business, which could raise up to £5bn. If it gets its hands on this extra cash, it may not need to sell shares to the Government in exchange for an injection of capital – thus allowing it to maintain its much-cherished independence. And with Barclays also reporting this morning that it has enjoyed a ‘strong start to 2009’, investors seem to be a bit more cheerful about the bank’s prospects – as shown by the stock’s 20% bounce today…

The weekend papers were full of speculation that Barclays could sell iShares, its successful exchange-traded funds division (tax-efficient investment vehicles that work like mutual funds but are traded on the stock exchange) that accounts for almost a quarter of assets under management at Barclays Global Investors, Barclays’ £1trn fund management arm. Opinion seems divided about the possible price tag – reports suggested US investors were offering somewhere between £3bn and £5bn, although the City seems to think the bottom end of this range is more likely. However, there’s also talk that it might be hard to sell iShares separately from BGI as a whole, so it’s possible the bank could end up selling the lot.

Barclays will be a reluctant seller, since both businesses are actually doing pretty well. But needs must: the bank has just opened negotiations with the Government about joining the Asset Protection Scheme already tapped by Lloyds and RBS, and it’s desperate to avoid giving up any of its equity to do so. By selling iShares, or BGI as a whole, it will bolster its capital position – so even if it still has to tap the scheme, it can pay for the insurance in cash rather than shares. That way the bank can keep the Treasury at arm’s length.
 
Barclays boss John Varley would no doubt be keen to preserve the bank’s independence anyway – without the Government as a major shareholder, he’ll have much more room to manoeuvre than the likes of Lloyds and RBS. And in this case, the picture is further complicated by the fact that when Barclays sold shares to some wealthy Middle Eastern backers last year, an anti-dilution clause was inserted – so their stake will increase if Barclays sells shares to the Government (or anyone else, for that matter).

It’s definitely good news that Barclays has enjoyed a healthy start to 2009. But unfortunately, even if its divisions are all trading profitably now, the bank could still end up losing pots of money on the dodgy assets sitting on its books. So Varley and co are not out of the woods yet...


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