Will probably seek guarantees on £20-81 billion of assets.
Barclays Plc is in talks to sell its iShares exchange-traded funds unit as the UK’s third- biggest bank tries to bolster capital without turning over a stake to the government.
Barclays rose as much as 22 per cent after the London-based bank disclosed the negotiations and said it has had a “strong start” to 2009. iShares may be valued at $2.84 billion (£2 billion) based on its earnings and other similar deals, estimated Alex Potter, an analyst at Collins Stewart Plc.
Barclays is exploring the sale of iShares after Royal Bank of Scotland Plc and Lloyds Banking Group Plc boosted their capital through a state asset insurance program that allowed the government to increase its holdings in each bank to as much as 75 per cent. Barclays will only enter the program if it can pay the fees in cash and avoid giving a stake to the government, according to five analysts surveyed by Bloomberg News.
The sale talks are a “surprise as management had indicated this business as being core to the group for several years now,” said Potter, who has a “hold” rating on the stock, in a note to investors. “Tough markets evidently lead to tough decisions being taken.”
Barclays rose 15.4 pence to 89.5 pence as of 10.47 am in London trading after it joined banks such as Citigroup Inc, Deutsche Bank AG and Bank of America Inc in announcing strong earnings for the first two months of the year.
The bank on Monday said it had begun talks with the Treasury about taking part in the asset protection programme. Participation will be based on the “economic merits” to shareholders, Barclays said.
Capital ratios
In January, the bank said it wouldn’t need government funding because of record revenue from Barclays Global Investors and the acquisition of Lehman Brothers Holdings Inc’s North American unit.
Since then, Lloyds said its core Tier 1 capital ratio — a measure of financial strength — will increase to 14.5 per cent through the asset protection program, and RBS estimated its ratio will jump to 12.4 per cent. By comparison, Barclays’s ratio was 6.7 per cent at the end 2008.
“They have to get some capital as the world has changed,” said Simon Maughan, an analyst at MF Global Securities Ltd who has a “sell” rating on Barclays stock.
Barclays Global Investors had $1.5 trillion (£1.04 trillion) of funds under management at the end of 2008, including £226 billion at iShares.
Being realistic
The iShares unit probably made about 25 per cent of BGI’s profit last year, or £110 million, and may be valued on an earnings multiple in the “mid-teens,” Potter said. That indicates iShares may be worth less than £2 billion.
The London-based Sunday Telegraph on Sunday said the unit could be sold for as much as £5 billion, without saying where it got the information.
“In these markets you have to be realistic about the affordability and the funding” for any potential purchaser of iShares, said Mike Trippitt, an analyst at Oriel Securities in London. If Barclays raises the participation fee for the asset protection plan by selling iShares, that would be “positive.”
Lloyds paid £15.6 billion for state guarantees on £260 billion of risky investments, or 5.2 per cent of the assets. RBS paid £6.5 billion, or 2 per cent, to protect £325 billion of assets. Both banks used preference shares paying 7 per cent interest to cover the fee.
Barclays will probably seek guarantees on 20 billion to £81 billion of assets, according to analysts surveyed by Bloomberg.
