When Barclays announced plans to sell part of its fund management business in March, it looked like a slightly desperate attempt to keep the balloon up in the air. Now it appears more like an astute bit of inflight refuelling.
In a perfect world, Barclays would hang on to the business, which has been growing strongly and has bright prospects. Its reliable profits would make a good counterweight to the build-up of Barclays’ investment banking division after the acquisition of the Lehman business in the US.
But the $12 billion price that Barclays is discussing with BlackRock, the US asset manager, makes it seem an attractive way for the bank to boost its capital ratios. Banks can’t have too much capital these days, particularly with the chance that there will be more distressed acquisition opportunities.
It is certainly more compelling than the original proposal to sell only the iShares exchange-traded funds bit of the business for $4.8 billion to CVC, the private equity firm, even after Barclays has paid the $175 million break fee.
Barclays would get $7-$8 billion in cash and a 20 per cent stake in the enlarged BlackRock. In the CVC case, Barclays was going to provide more than 70 per cent of the financing but it is not expected to stump up anything like that for BlackRock.
Advertisement
BlackRock is hoping to fund the cash element partly by raising about $3 billion from Middle Eastern sources, possibly the same funds that have just made a killing out of their investment in Barclays.
Retaining a stake in the enlarged BlackRock will give Barclays a continued economic interest in the world’s biggest fund manager without the regulatory complications of full ownership.
It also looks a good deal for Larry Fink, the highly successful chief executive of BlackRock, who only three years ago clinched the huge merger with Merrill Lynch Investment Management.
The other big winners will be the Barclays staff, including Bob Diamond, its president, who bought shares in the business at very attractive prices.
Mr Diamond, who is himself in line for a $20 million windfall, has stood aside from the negotiations. It still looks very odd — a senior executive benefiting from the sale of a subsidiary he oversees.
Advertisement
But Barclays shareholders do not seem very exercised about it. After all, the arrangements seem to have worked rather well for them, too.