Barclays Pressured To Offload Trillions In Assets To Stave Off Government Ownership

Barclays PLC (BCS) today (Monday) confirmed that it is trying to sell its iShares unit, and is talking to a handful of potential suitors.

In the same release, U.K.-based Barclays also said it is talking with the Treasury and Financial Securities Authority about possible participation in the government’s Asset Protection Scheme, an insurance program that promises to back bank’s riskiest assets - specifically, those backed by mortgages and loans. But if Barclay’s is able to sell its iShares unit itself the additional costs associated with a government stake.

Barclays’ rivals Royal Bank of Scotland Group PLC (RBS) and Lloyds Banking Group PLC (LYG) have raised capital by selling company stakes as high as 75% to the U.K. government.

By selling iShares, Barclay’s “could bullet proof the balance and there’ll be no government stake, which is invaluable,” Fox Pitt, Kelton analyst Pawel Uszko, told Reuters.

How valuable? By accepting funds from the $37 billion Asset Protection Scheme, Barclays would first have to pay a fee to participate and then enter legally binding agreements requiring them to lend more money to creditworthy borrowers.

So far, Barclays has staved off accepting government money. In June 2008, it raised $8.9 billion (7 billion pounds) from Middle Eastern investors, a move that gave those investors about one-third the bank.

Selling Other Assets

Alex Potter, an analyst at Collins Stewart PLC, estimates iShares’ value at about $2.84 billion (2 billion pounds) based on its earnings and similar recent deals.

In his note, he estimated that Barclays iShares unit - a plethora of exchange traded funds that track nations, sectors and exchanges - made about 25% of the company’s profit last year. Potter listed Barclays as a hold, saying “tough markets evidently lead to tough decisions being taken.”

London’s Telegraph reported that iShares could be sold for as much as $7 billion (5 billion pounds). One source close to the bank said Barclays is in talks with U.S. investors for a sale in the $5.65 billion (4 billion pound) ballpark.

Selling iShares might not be Barclays’ first or last asset sale.

The Telegraph also reported that Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family, and two Qatari investment vehicles are pushing the bank to sell the its entire Barclays Global Investors (BGI) business, which is valued at about $1 trillion (715 million pounds).

“What they are interested in is putting together a larger deal to buy BGI and then sell on iShares themselves,” a source close to the talks told the Telegraph. “There is a decreasing appetite for foreign deals among Middle Eastern investors as more investment opportunities come available within the region, so the assets have to be very attractive.”

Barclays did not broach the BGI rumors in its release.

Barclays also said in the release that its “businesses continue to perform well and have had a strong start to 2009.”

Subscribe by RSS Subscribe by Email