Barclays sells BGI as West Brom narrowly avoids bailout

Barclays flogs its fund manger for £8bn, as more financial giants pay the price for previous excesses.

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Last Updated: 31 Aug 2010

Barclays said today that it’s agreed to sell Barclays Global Investors, its fund management division, to larger US money manager BlackRock. The cash-and-share deal, worth £8.2bn, actually looks a pretty good one for Barclays – but it’s hard to imagine them selling this jewel in their crown unless they absolutely had to. Like West Bromwich Building Society, which at least seems to have escaped the fate of Northern Rock by persuading its creditors to swap their debt for (quasi-) equity, Barclays is paying the price for some bad pre-crunch decisions...

So why is Barclays selling off one of its most profitable and widely-admired divisions, in a sector that’s growing fast? Well, apparently it wants to strengthen its balance sheet to cushion it against future losses on dodgy loans made in the boom years. BlackRock is paying about half this £8.2bn in cash, a handy boost to the coffers. The rest will be in shares, leaving Barclays with a near 20% stake in the combined group – so if it really takes off in the coming years, at least it will have some share in the upside. And although BGI staff will be worried about jobs, at least they have the consolation of sharing a £345m windfall (including £16m for its penurious investment banking chief Bob Diamond - that should keep the wolf from the door for another month or two).

By credit crunch standards, this is a pretty massive deal (to put it into context, you could only buy 102 Cristiano Ronaldos for that). And given that Barclays is effectively a forced seller, it actually seems to have got a pretty decent price. It will also create an industry behemoth: the combined BlackRock/ BGI becomes the biggest fund manager in the world by some distance, with $1.9trn of assets under management. That’s more than some countries, and as Robert Peston points out, makes it about the size of the entire hedge fund industry. Still, we can’t help feeling that Barclays boss John Varley was gritting his teeth when he signed on the dotted line. Although the fact that he hasn't tapped the Government for funds might make him feel a bit better.

Speaking of which - albeit at the slightly weenier end of the financial scale - West Bromwich Building Society has also found a route out of its recent travails. It’s another mutual that got itself into trouble by ploughing into commercial property and buy-to-let lending, while becoming over-reliant on the wholesale funding market (sound familiar?). Earlier this week it looked like it might have to be bailed out by the taxpayer – but now it’s managed to convert its £182.5m debt to equity (well, they’re not technically shares, but it’s more or less the same thing). This will boost its capital cushion and ensure its survival – while its new management team has been busy getting out of these sub-prime areas, deciding to take deposits and lend mortgages instead.

A radical idea indeed. Pity our lenders didn't work that out five years ago.


In today's bulletin:
Barclays sells BGI as West Brom narrowly avoids bailout
Headhunters may roll as KornFerry acquires Whitehead Mann
MT Survey: Do you trust your boss? LAST CHANCE TO ENTER
Small business hit as RBS siphons off non-core borrowers
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