Barclays mulls sale of asset management unit for $12 billion

18 May 2009

Britain's third largest bank, Barclays PLC plans to sell its valued asset management unit Barclays Global Investors (BGI) to potential bidders including New York's BlackRock Inc. and Bank of New York Mellon,  to raise up to $12 billion (£7.9 billion).

Last month, Barclays announced to sell iShares, its exchange-traded funds unit, which is part of BGI, to New York's CVC Captial Partners for $4.4 billion (£2.9 billion). (See: Barclays considering offers for asset management arm)

However, in the agreement with CVC, Barcalys kept the right to hunt for a better deal till 18 June, under a ''go shop'' clause, by paying $180 million break up fee to CVC.
 
BGI is one of the leading money managers with a global reach with offices in a dozen countries covering 50 of the world's equity markets and currency markets as well as 16 bond markets. The products include active equity, income and index funds, and cash management apart from securities lending services, transition management etc.

The investment firm manages around $1.5 trillion ((£1 billion) worth assets and recorded a pre-tax profit of $906 million (£595 million) in 2008, approximately two-thirds of which came from the iShares and the securities lending businesses.
 
So far, Barclays has avoided government aid to tide over the financial crisis which was helped by the decision to sell iShares. Recently, it passed a financial resilience test by the authorities which was aimed to check the financial institution's ability to withstand the financial meltdown.

It is expected that the sale of the BGI unit would strengthen its balance sheet considerably. The bank's tier 1 capital ratio-financial strength indicator-which is a measure of core capital on the bank's balance sheet as a proportion of risk adjusted assets, was 7.2 per cent, one of the lowest in Britain.

Potential buyers of BGI are on the look out for its securities lending business, apart from the exchange traded funds business of iShares. The securities lending involves lending of stocks or bonds from BGI's large portfolios in exchange for cash, government securities or letter of credit which is further invested to generate additional returns, making the business highly profitable.