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More protection for Barclays

Robert Peston | 06:36 UK time, Friday, 12 June 2009

Barclays has sold one of its jewels, Barclays Global Investors or BGI, to raise capital as a protection against further losses on the loans and investments it made in the bubble years - and to provide a bit more insulation from what other financial storms may lie ahead.

The buyer is BlackRock of the US, and the deals turns BlackRock into the world's biggest money manager, with a striking £1.9 trillion of funds under management - which is more-or-less the size of the entire hedge fund industry.

Just under half the price of £8.2bn is payable in cash, with the rest in BlackRock shares - so Barclays will emerge with 19.9 per cent of this vast enlarged financial machine.

If BlackRock does well, Barclays will benefit - although there has been a sacrifice in reducing its stake in an industry which is expected to grow over the coming years.

But, the price doesn't look too bad, relative to BGI's earnings and its implicit share of Barclays' overall market value.

The most controversial element of the deal is the £16m reward it yields for Bob Diamond, the head of Barclays' investment bank.

It's not really a hairshirt year for Diamond, even though he has curbed his other remuneration, for a bit.

Comments

  • Comment number 1.

    The news article states "The Barclays staff, who own 4.5% of BGI, will share a £365m windfall." This is not accurate. Only a certain percentage of staff own shares in BGI. The rest will get the usual results from this deal, i.e. months of wondering if they will still have a job in 6 months time.

  • Comment number 2.

    How about Barclays giving it's loyal savers a decent interest rate before they walk?

    No. I thought not. Bob Diamond? PAH!

  • Comment number 3.

    You also forgot to include that one of the main benefits of the deal, apart from lifting Tier one ratio to about 9pc, is that Barclays Capital will be able to trade more freely with the enlarged BlackRock/BGI. Previously, as Barclays owned both it could only trade a little.
    Also the middle east could own as must as 15pc of the new venture after lending BlackRock GBP3bn for the project.

  • Comment number 4.

    Barclays have so-far managed to keep their losses away from the taxpayer.
    That can only be a good thing...let's hope it continues.
    But all banks must be doing some "soul-searching" at the moment.
    Who they lend money to.
    How much they lend.
    And are asset prices realistic?
    The promised "heavier regulation" from the government doesn't seem to have materialised much yet.

  • Comment number 5.

    It is one big incestuous family in the World Wide Global Banking World

    RBS / Merrill Lynch / Bank of New York / Mellon Bank / Black Rock

    Have merged / split / had reverse takeovers or share company holdings

  • Comment number 6.

    what happened to the "too big to fail" problem, Blackrock is now bigger than the GDP of some countries.....

  • Comment number 7.

    No stakeholder in Barclays can complain about the way in which it has built BGI in to a highly successful business. Those who were responsible for that deserve great credit.

    Barclays should also be applauded about the way in which it has kept itself out of the taxpayers arms and is positioning itself well for the upturn.

    But......

    Some lingering questions remain about this deal, its motives and its timing

    Why would Barclays want to sell one of its crown jewels at the bottom (or close to) of the market ?

    Is this about adding additional capital to shore the bank up against future losses. Maybe

    Is there also a strong motive here from Bob Diamond and the senior Barcap/BGI staff who "own" shares in BGI to generate some additional funds for themselves at a time when investment banking remuneration has fallen through the floor. Quite likely. Personal motives are usually at the core of business decisions.

    The Barcap/BGI staff do not of course "own" a part of BGI directly. BGI is 100% owned by Barclays. The small number of senior staff were gifted "shadow" BGI shares many years ago at a favourable price as an incentive to make money for themselves as well as Barclays. Nice business if you could get it.

    Meanwhile back in the real world most Barclays staff who bought shares through its sharedeal schemes over the years have seen the value of their shares more than halve in many cases and the majority will be sitting on losses.

    And of course longstanding Barclays staff who have yet to be made redundant (18,000 of them) have just had their final salary pension scheme benefit stopped and will, in effect, have a 3% pay cut in order to contribute to the new scheme. All those except US staff including..... Bob Diamond

    We live in interesting times

  • Comment number 8.

    jolo13 wrote 'what happened to too big to fail' - Blackrock are an Investment Manager not an Investment Bank, the two are quite different. Investment Managers do not take principle positions in markets, and therefore do not create levels of exposure that could threaten their own capital base.

  • Comment number 9.

    I am led to wonder... If their accounts were/are so good and they passed the stress test so well why they sold the profitable division?

    The rational conclusions I come to are that they did what they did for sound commercial reasons so one must perhaps consider the the accuracy of the strength of the accounts and/or the quality and value of stress tests?

  • Comment number 10.

    The good news here should be that a British Bank still has divisions worth £8.8B to sell, as opposed to requiring recapitalisation from the UK Govt, 'You and Us' as Robert would say.
    And that this sale further reinforces the Tier 1 capital base of Barclays at a time when the FSA and you know who have finally woken up to what Bank Regulation really is. At the same time lessening any further requirements of 'handouts' from the UK Govt.

    Don't think there's much left at the Scottish Banks, that even Real Madrid would want to buy!!!

    Think the focus on 'Senior Staff's reward', including Bob's, is somewhat irrelevant.
    This sale is certainly not driven by personal greed and more about the good of the Barclays Group.
    Bob was instrumental in BGI's growth to the position it is in today, and his 'reward' therefore seems reasonable. If you sold a business you had built up from smaller acorns shouldn't you be entitled to some of the oak tree?

    On a different angle, it is a shame that Barclays is selling BGI. Which is the world leader in asset management, responsible for developing the exchange traded funds market to what it is today, to the benefit of the investor. Also developing Liability Driven Investments models, which we will all need with the dominance of Money Purchase Pensions over Final Salary.
    Finally let's remember that BGI, although owned by Barclays PLC, is essentially a US company. Headquartered in San Francisco, managed and run by Americans, with a much smaller presence in Europe.

  • Comment number 11.

    This sell off wouldn't have anything to do with the gross mis-selling scandal Barclays have gotten themselves into as discovered by the Daily Mail (2nd June 2009) where thousands of elderly customers have been mis-sold risky investment funds and are now suing Barclays for what could run into millions of pounds?

  • Comment number 12.

    The Americans are doing really well out of this recession. I wonder if they'd like to buy LDV as well.

  • Comment number 13.

    The sell off has nothing to do with the Daily Mail story.
    The funds in which people lost so much money were Aviva Funds, these are not managed by BGI, but by Aviva Investment Managers. That story should also focus on the ineptitude of the Aviva Fund Managers responsible for this fund, as well as the Barclays Salesman that sold the fund to the unfortunate clients.
    A good advert for BGI really, their funds haven't collapsed like this one, and another good reason for the sale. Because as BGI will no longer be wholly owned by Barlclays, BGI funds can be sold easier without accusation of 'pushing' Barclays products.

  • Comment number 14.

    Islider 55

    You are wrong

    You should always question personal motives - they are principally what drives (individually or collectively) corporate decisions

    I have nothing against Bob Diamond. He has done well for Barclays. He's also been rewarded extremely handsomely as an employee ie not risking his own money. One of the lessons of the banking crisis, albeit not as big a lesson as some on the Labour benches would have you believe, is the disconnect between the risks that investment bankers have taken and their rewards. If they were risking their own money I suspect some of the decisions taken would have different.

    Entrepreneurs who risk their own capital deserve the sort of rewards some investment bankers have taken, the latter who are risking our capital shareholders, don't.


  • Comment number 15.

    Selling off the family silver

    At first impression something about this sale stinks. After all selling off a crown jewel! You normally don't do this, especially at a low valuation, right?! Can I sell off buckingham palace, why? Just so I can make a couple of dozen million dollars, never mind the national interest. Why does Bob deserve 16 million pounds for selling off something that was easy to sell?

    There are a lot of questions here and Robert needs to do more investigating and reporting. Why is the sale in the interests of Barclays and London? Is Barclays likely to profit significantly from this deal? Was the valuation good compared to a five year average valuation? Bob has had a lot of criticism - is he benefiting his American friends before jumping ship - possibly to Blackrock? These suspicions need to be cleared up for Bob's sake as well as ours. There's been too many murky dealings in international finance and we need to clean up the system to restore public confidence in the system. This also requires good responsible reporting to tell us about improvements and doesn't make even straight and honest finance people look like banksters. At the same time we need to maintain legitimate financial freedom and creativity as there are plenty of other cities interested in London's financial crown.

  • Comment number 16.

    MarkL64

    You have a valid point.

    However if you apply this with the tar brush you are referring to i.e. no reward incentives for CEOs and the like for building successful businesses, then BGI would not be worth £8Bn, nor would BGI have contributed around 25% of Barclays Group profits over the last five years. Profits which are dispersed to you the shareholders

    Therefore individual deals must be judged on their own merits.

    BGI is being sold at a low point in the market, and yet for a very sizeable amount.

    This extra capital will increase Barclays Tier 1 Capital Ratios, which is the biggest number for measuring banks stability.

    Look at HSBC, why have they not needed recapitalisation. Because they have had one of the best, if not the best, Tier 1 Capital Ratios for the last 15 years.

    Now if you look again at Barclays, the timing of this increase in Tier 1 is poignant. If you look at the Lehman's business acquired at virtually no cost last year by BarCap, this will allow BarCap to build this much better balanced, geographically and product, business.

    The deal to buy the leftovers of Lehmans and not the entire Inv Bank, risks and all, was brokered by Bob.

    An illustration of a CEO providing future value to shareholders and perhaps the opportunity for a future reward, as here with BGI, once the business model has been validated by verified sustainable profits.

  • Comment number 17.

    MarkL64 - one point to add to my previous post.

    There does seem to be a contradictory point to your argument of CEO reward when not risking their own capital.

    You say CEO's shouldn't profit as Bob has. As he doesn't risk his own money/capital as an entrepreur would.

    However the reward Bob is receiving is due to his ownership of BGI shares, received as an incentive sheme for previous performance.

    Therefore once Bob owns BGI shares he is risking his own capital/money through his management of BGI and the risks etc he chooses to allow BGI to take or not, as would an entrepreneur. And therefore the resulting effect on the value of BGI and his share in the firm.

    I agree, he is still risking the remaining shareholders capital(Barclays Group). But that is his job as defined by his employers, Barclays Group. And Bob only sees a reward from his shareholding if the remaining shareholders also see the added value from the sale of BGI.

  • Comment number 18.

    Will the "Labour promise" of rewards being paid on success and not on just the deals will be carried out in this instance? Will the £350 million payout to barclays employees be delayed for at least 2-3 years? Or the government will forget the promise for the quick buck it will make in taxes?

  • Comment number 19.

    Ah, the usual sniping at CEO remuneration. After all, it must be so easy to do their job that anyone could do it. So, what is stopping the correspondents on this topic from doing it - the 20/30 years graft to get to the top and the 100 hour weeks? Much easier to sit on your lazy ar5es and criticise.

  • Comment number 20.

    Anyway as this is my first time posting on here, just thought I add that I think ther have been some quite elloquent well put points from both sides.
    Let's look at some positives, quite rightly people have previously complained of what has happened with Northern Rock, RBS, HBOS, Lloyds etc. But shouldn't we be happy about a British Bank having positive news instead of horror stories.
    Unfortunately I won't be able to post further today, as off to the Dealers to collect my Range Rover and then off for a round of golf.

    Have a good weekend

  • Comment number 21.

    At last, it seems Robert has run out of pointlessly negative things to say about a British bank that is doing rather well, so has resorted to sniping at the top man's pay, as usual. Pathetic. Barclays has got a bull market price for BGI, despite the current environment, and the man who has built a 450 million dollar business into a 13.5 billion dollar business under his watch, without acquisition, deserves to be rewarded well. And to all those saying this is about financial gain for Bob Diamond - you show your obvious naivety about what is important to these guys.

  • Comment number 22.

    A good deal for Barclays and for Bob Diamond.

    Varley and his crew are managing to keep one step (let's say several steps) ahead of the competition. Nothing wrong witht that.

  • Comment number 23.

    I slider 55

    My apologies, maybe I am not making myself very clear

    I am not against CEO/staff incentives in large organisations. As a shareholder and committed believer in a market economy, quite the reverse in fact. I merely make three observations about this:

    1. The scale of the reward where the person is an employee. Bob Diamond has NOT risked any of his own money with BGI. He was gifted the shares. If the business went down the pan he effectively lost nothing. I don't believe any employee in a large organisation is worth this sort of money. Large organisations are too complex to be run by one person (RBS shows that !). They need teams.

    2. I am questioning the motives behind the sale of BGI at this point in time. Not least because the FSA has recently ruled that Barclays has sufficient capital. Why sell now at close to the bottom of the market ?

    3. The contrast with what the vast majority of Barclays staff are currently experinecing is quite striking. Thousands of redundancies, bonus/incentive schemes slashed, ending of final salary pension scheme, effective pay cut, share price halving (its interesting that since the announcement of the BGI sale Barclays share price has fallen back).

  • Comment number 24.

    Following on from Markl64 #23
    What is most concerning about the extremely high salaries being paid in the financial industry during the last 10 years is that it has been accompanied by returns on equity investments which has made it one of the worse decades of the century despite the vast growth due to globalisation. Much of these vast salaries have been driven by the private equity industry and their leveraged buy out of perfectly sound companies cannot help but raise questions such as
    1. Are the financial insiders effectively cherry picking the best public companies for themselves and leaving our pension funds with the drose.
    2. Why is it that apparently financially savvy bankers and fund managers buy all the corporate debt which resulted from these buyouts. Since anyone with any sense knows that if you are lending 80 to 90%
    of the value of the company you are taking on virtually the same risk as an equity investor but with no upside reward .if it all works.
    Which is why they have lost there shirt.
    3 If we pay fund managers very well to judge the long term value of companies and corporate managements well to maximise the value of the companies. How can private equity firms purchase assets from these people. Run them for a few years and then sell them back to essentially the same people at a handsome profit. This begin to sound like someone is not earning their pay.
    4. What good do these buyouts do. I remember when there was an attempt to take Sainsburys Private. It was asked why the bid had not been made a little earlier when the supermarket was having some problems and the shares were cheaper. The commentator explained that private equity were happy taking on financial risk but kept clear of operational risk. In short they were only interested in taking over already sound businesses with other peoples money. Nice work if you can get it.

    Now I may be wrong and there may be no connection between current practices in the city and the poor returns ordinary investors have recieved over the last decade and things may much improve in the next decade. But if not then vast numbers of hard working, sensible middle class savers will lose faith in the city and they will indeed have killed to Goose that laid the golden eggs.

  • Comment number 25.

    Another bank funding/ bankers' bonus story of interest to some. Within 12 months Barclays have raised Tier One to 8% plus from ?4% plus. But, the crucial question to our economy is what does this mean for the ability of Barclays to service business needs going forward.Its one thing to buffer losses - can it fill the lending capacity shortfall? What are Barclays UK business customers saying? With respect, there isnt enough scrutiny by journos on this matter essential to our recovery. The MPC members have been on tour making speeches raising the red flag on what the banks are not doing to service UK business.Its as if the glamorous headlines on who's being paid what and the sexy global deals make the better copy.Lets shift the debate, please.

  • Comment number 26.

    MarkL64 - Suggest we may have to agree to differ, but my views would be as follows:

    1 Your arguement is still contradictory. On one side you say the reward of £16m is excessive with no personal risk. And yet on the other hand you say he wasn't risking anything personally, well the valuation of BGI suggests he was risking £16m, hardly 'losing nothing'.
    On the origin of the shares, you say these were 'gifted', this is misguided and could be compared to an employee being gifted his wages in return for his labour.
    I have previously worked for a startup company where a fair portion of my Salary package was made up of free share options. These were not actually free because my actual salary was lower than market to reflect the options potential value. When the company was taken over at a price lower than the options stike price my holding was worthless. I can assure I had not lost 'Nothing'. But I accepted that risk, had things been different I would have made a handsome return.
    Is this wrong also?
    Or another way on the point of no risk, had Barclays gone down the pan, this is a good comparison of the housing market. As his stake having a 'paper' valuation in the same way a house as an 'equity' valuation. Are you saying people who are repossessed and in negative equity have lost nothing,(any mortgage payments would be comparable to rent and have to be discounted from overall investment, any deposit would be 'gifted' from salary exchange for labour).
    To summarise people can't complain about the 'reward' of £16m, and ignore the level of his personal ownership of BGI. The two go hand in hand.

    2 As mentioned before, this sale bolsters the level of Tier 1 Capital. Having the minimum level of Tier 1 Capital doesn't mean it would not be worth increasing Tier 1.
    Would you agree that driving a car with tyres at the legal minimum, is less safe than driving a car with tyres at a level higher than the minimum in heavy rain. And yet it is still legal.
    The Tier 1 ratio is meant to be relevant to Banks weathering Financial Storms. Remember HSBC was the irst bank hit by the US subprime collapse way back in early 2007, they haven't collapsed or gone cap in hand to UK Govt due to having one of the strongest Tier 1 Capital Ratios in the world.
    Also, the trend over the last couple of years generally in the Investment Management Industry is Bank owned firms are being sold off to operate independently of Parent Banks. This is deemed the better model, and exactly what is happening here.
    Also Ishares has probably outgrown the ETF market and will not grow as much in the future, the sale of which prompted the unsolicited offers for the whole of BGI at a Sellers Price. This was not a fire sale.

    3 Cant disagree with you on this one. The comparison is enormous.
    However the 'reward' is based on Bob's personal holding in BGI.
    Now would shareholders in other companies give up any gains made to others? That's just how it works.

    Finally on Shareholder Value collapsing in general and impacting Pension Funds, Investment in Industry, Consumer Spending and the Housing Market. Let's remember that the UK has been living through a credit bubble chasing finite goods and resources for most of this century.
    This credit bubble was artificially encouraged and maintained by Govts globally and particuarly here in the UK, whilst said Govts spouted rhetoric of Fiscal Management never seen before.
    They weren't wrong there were they???

  • Comment number 27.

    Shireblogger - Very valid point, and quite crucial to the UK economy dragging itself out of recession.
    And I'm afraid there isn't any easy answer here.
    However the one point that is pivotal to this process, which is very rarely reported, and never acknowledged by the Govt as it negates all of there blame apportion to the Banks that are left. Is that prior to the credit crunch a large proportion of SME and Corp Lending, never mind Retail Mortgage Lending, was provided by overseas banks (Iceland, Eire, US) and the now bailed out NR, HBoS, RBS and Lloyds.
    The Foriegn Banks have largely withdrawn from the UK market, the bailed out banks have been told by the FSA, Trasury and Govt to rebuild their balance sheets.
    With these two factors affecting the Lending Market in the UK, the remaining Banks Uk and European still functioning in the UK Lending Market simply do not have the Capital to fill such an enormous gap that's been left behind. Whether they wanted to or not.
    Until this is publicly understood and discussed, the UK Lending Market will not be able to service the demand from UK SMEs, Corporates & Retail Mortgage Customers.

  • Comment number 28.

    [Unsuitable/Broken URL removed by Moderator]The Clash - Bankrobber
    http://www.youtube.com/watch?v=dSl0w5Cqj-Y&feature=related

    MIKEY DREAD--BANK ROBBER-- LIVE
    http://www.youtube.com/watch?v=QHTNyUm3LSM&feature=related

  • Comment number 29.

  • Comment number 30.

    Comment #10 is talking absolute trash, BGI was created as a result of BZWinvestment management buying Well Fargo investment management which was at teh time the worlds largest index tracker manager.

    Diamond had nothing to do with it and as other contributers have made clear the perk was limitd to very few 'staff' members.

    Barclays has increased its tier one solvency but this could be wiped out if thye were honest about their liabilities.

    The FSA stress tests were a joke and anyone connected knows that, it was felt easier to keep the 'public' calm than volunter the real mess the banking sector was in, and for that matter still is in.

    Brown has buck passed the banking mess to Mandleson who will make no difference save to handle the press as he always has by fending of important issues and replacing them with tittle tattle.

    Barclays are still up to their eyes in mess and all the creative accounting they will produce will not take that stigma away from them.

  • Comment number 31.

    Proman53 - think a trip to the opticians may be on the cards for you!

    I didn't say he created BGI, and you are correct on the component firms that when merged were renamed Barclays Global Investors. Interestingly John Varley oversaw BZWIM at the time, but I didn't say he was responsible for BGI becoming what it is today either.
    What I said was Bob was instrumental in BGI's growth to what it is today.
    If you would like to challenge my comment feel free, and I look forward to your explanation.
    Whilst the Index Tracking element is still a sizeable portion of BGI's product offering, this hasn't grown that much as a percentage of AUM (Do you know what that means?)since the establishment of BGI
    One of the main factors of BGI's growth over the last eight years, which is when BGI grew most, is the creation of the Ishares brand. Which is the Number One Exchange Traded Funds provider in the world. Part of it's growth in Europe was through acquistion in the German market in 2007 to greatly expand the existing Ishares European Model. Suppose Bob had nothing to do with that then, or was it planned way back in 1996???

  • Comment number 32.

    Also Proman 53 you forgot about Nikko!

 

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