April 1, 2009 - 8:51am
Barclays has revealed it was in exclusive talks to sell its iShares asset management unit to private equity firm CVC Partners. The deal is likely to be worth around 3 billion pounds ($4.3 billion). Some of the other potential bidders were Goldman Sachs Bain Capital and a consortium of Hellman & Friedman and Apax Partners.
The sale will not be including the securities lending business of San Francisco-based Barclays Global Investors (BGI), the parent of iShares, which will make the deal less complex with the US regulations. Barclays is expected to retain a roughly 20 percent exposure to iShares. It is also predicted that Barclays will lend CVC, which might not be bidding alone but as a consortium, a significant portion of the money required to finance the deal. The deal could be reached as early as the end of this week.
Analysts had estimated the value of iShares to be about 3 billion pounds, while bank industry sources stated bidders could be willing to bid as much as 4 billion pounds, probably including the securities lending business. As stated before the price of this deal is lower. Nonetheless, experts forecast it to produce a substantial capital gain, just enough "to push their core Tier 1 ratio north of 7 percent, which is what the market wants to see," as Simon Maughan, analyst at MF Global, said. On the other hand the company said it didn’t need to raise capital as strict stress test held by Britain's financial regulator had showed its balance sheet could withstand more pain.
Additionally, Barclays is expected to consider joining other banks in offering to exchange low-ranked bonds for higher quality debt to increase balance sheet quality. The bank currently has 34 billion pounds of Tier 1 and Tier 2 bonds. Repurhcasing 7.5 billion pounds of those could increase its core Tier 1 ratio by approximately1.2 percent, stated analysts at Credit Suisse.
The sale will not be including the securities lending business of San Francisco-based Barclays Global Investors (BGI), the parent of iShares, which will make the deal less complex with the US regulations. Barclays is expected to retain a roughly 20 percent exposure to iShares. It is also predicted that Barclays will lend CVC, which might not be bidding alone but as a consortium, a significant portion of the money required to finance the deal. The deal could be reached as early as the end of this week.
Analysts had estimated the value of iShares to be about 3 billion pounds, while bank industry sources stated bidders could be willing to bid as much as 4 billion pounds, probably including the securities lending business. As stated before the price of this deal is lower. Nonetheless, experts forecast it to produce a substantial capital gain, just enough "to push their core Tier 1 ratio north of 7 percent, which is what the market wants to see," as Simon Maughan, analyst at MF Global, said. On the other hand the company said it didn’t need to raise capital as strict stress test held by Britain's financial regulator had showed its balance sheet could withstand more pain.
Additionally, Barclays is expected to consider joining other banks in offering to exchange low-ranked bonds for higher quality debt to increase balance sheet quality. The bank currently has 34 billion pounds of Tier 1 and Tier 2 bonds. Repurhcasing 7.5 billion pounds of those could increase its core Tier 1 ratio by approximately1.2 percent, stated analysts at Credit Suisse.