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Barclays' painful deal

Robert Peston | 17:50 UK time, Thursday, 9 April 2009

Barclays says that it has sold iShares - a provider of specialist stock-market funds - for £3bn.

But it's not a sale in the sense that most of us would recognise. Because it has lent the buyer, the private-equity house CVC, £2.1bn of the purchase price.

In fact Barclays' continued exposure to iShares seems even greater than just those loans, in that the deal adds £2.7bn to what the bank shows on its balance sheet as its so-called risk weighted assets.

That said, Barclays says that through the miracle of how banks do their accounting there will be a useful addition to its capital resources, its buffer against losses on lending.

Some would argue that extra bit of buffer has been acquired at the steep price of selling a growing business at a knockdown price into a buyer's market.

Which only goes to show quite how desperately Barclays - like most banks - needs capital, even if it has avoided the indignity suffered by Lloyds and Royal Bank of Scotland of getting that capital from us, from taxpayers.

What's even more delightful for the purchaser, Barclays will pay CVC £120m if it rats on the deal by securing better terms from another bidder (there's also provision for both Barclays and CVC to receive between £34m and £120m if either side walks away for other reasons).

And for some Barclays employees who have stakes in a subsidiary of the bank, BGI, there's a lovely windfall from the deal, in the form of a cash dividend and a more than doubling of their holding in BGI.

Barclays' president, Bob Diamond, will receive £4.7m in cash and a substantial increase in his interest in BGI.

So to summarise: Barclays is providing the buyer of iShares most of the finance to "buy" iShares; the purchaser will receive £120m, if Barclays secures a better offer; and the transaction has triggered handsome rewards for some Barclays' employees.

In normal times, that would be seen as a deal so bad for the bank that shareholders would be volunteering to throw themselves off Beachy Head.

But Barclays' share price rose more than 12 per cent today.

To state the obvious, these are not normal times, these are credit-crunch times: and, I guess, if a bank can raise capital in any way at all without tapping taxpayers, that's seen as good news.

PS. I'm planning to skive off for a few days. So forgive me if Picks goes quiet for a bit (and if you appreciate the silence, you don't need to inform me).


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  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    Enjoy your Easter Robert.

  • Comment number 3.

    Talk about robbing peter to pay paul! Oh and what a surprise senior managers get a nice little sweetner in with the deal.

    Who was it that said power corupts.....?

  • Comment number 4.


    Yet another banking story - a little more variety of business topics, as requested by many of your posters, would be refreshing and most welcome.

    Don't scoff too many Easter Eggs lol.

  • Comment number 5.

    Interesting comment when you said:

    "Barclays says that through the miracle of how banks do their accounting"

    We all know where banks miracle accounting has gotten us. It`s the only walk of life where you can take nothing and turn it into something of great value. And if that wasn't a good enough trick the top execs can then collect millions in real money!

    "How to Lose Your Shirt in Banking"

  • Comment number 6.

    BTW enjoy the Easter break RP!

  • Comment number 7.

    You talk about Money as if it's a rare comodity it's not!

    Just PRINT some more!


  • Comment number 8.

    These Bankers are still living in "Cloud Cuckoo Land" whereas the rest of us are up to our armpits in alligators!!

  • Comment number 9.

    My dear friend Bob Diamond needs the money. So I hope no one is complaining about that.

  • Comment number 10.

    "the miracle of how banks do their accounting" is this :
    This is how they make loan :
    Dr Loan Account $100
    Cr Current Account ($100)
    The "Cr Current Account ($100)" is money - New money they just made up !
    That's all money is : Universally Transferable Bank Debt
    - This has some rather interesting consequences:

  • Comment number 11.

    Hmmm. What if, in the fullness of time, that £2.1 billion loan leaves a hole in Barclays' balance sheet and the taxpayer needs to step in once again (not inconceivable)? Remind me how much the Barclays guys are taking out of this deal? I think Bob Diamond alone may be raking in £10 million. This had better work for Barclays over time or Bob Diamond could find himself in exile with another well-known ex-banker ... and the taxpayer in even deeper hock. Perhaps it's a case of once a banker, always a banker, regardless of how much taxpayer cash is thrown at them? Time will tell.

  • Comment number 12.

    What a surprise another banking story from the BBC Banking editor.

    Or is banking the only business that counts these days?

  • Comment number 13.

    So Barclays had to sell iShares to improve its capital ratios - that is it needed the cash. This deal shows just how desperate a seller Barclays has become.


    What possible explanations can there be?

    My feeling is that the degree of desperation of the sale speaks volumes about the state of something within Barclays. I see no other rational or logical explanation.

    Barclays resisted Government help to keep its books from being examined by outsiders and paid 14 percent for its capital - now this move just compounds my concerns.

    What are its external auditors doing and what will they do, for it seems to me that this sorry mess of very expensive capital and desperation selling point only one way and that is that there must be grave concern about something in the accounts or on the balance sheet of Barclays (or indeed not on the balance sheet!)! I can see no other explanation can anyone else? If they are as sound as they claim why can't they get money and sell things, like other sound banks? (And yes I know that no banks are trying to do much at present and this also points to problems within Barclays.)

  • Comment number 14.

    sounds very 'creative' - do the regulators approve ?

  • Comment number 15.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 16.

    If you have something which you have to get rid of, and if you sell that something by providing the funds for the buyer to buy, which sounds like a loan to me, do you make a commission on the sale, a commission on the funds provided, and a bonus for just doing your job. With the previso that if it goes wrong somebody else pays the bill. Is that how it works.

  • Comment number 17.

    This isn't robbing Peter to pay Paul, it's the Paul Daniel's magic school, being abused by the bankers!

    For crying out loud! I presume this non-trick of accounting was deemed to be appropriate by the board reading their horoscopes in today's red tops. With this manky accounting, they obviously have seen it in the stars that there will be retrospective laws enacted. They have no intentions of doing the right thing, only what they know they will get away with.

    And in today's climate the senior managers are doing very well. Surprised, anyone?

    It is time criminal investigations are carried out in every financial institution in the land. The regulators should be investigated in the same way. Spivs no longer describes these people.

    Enough is enough.

  • Comment number 18.

    Other news outlets are stating that Barclays have a further 45 days in which to seek a more favourable deal for this sale - so does this mean that any rewards to Barclays staff will have to go on the back burner until such deadline has expired? If so, then I trust that the financial regulators will take that period of time as an opportunity to go through the books with a fine toothed comb.

  • Comment number 19.

    I think barclays are a tremendous bank. brownwatch 417 days.

  • Comment number 20.

    To be honest, it's the likes of CVC that created this mess in the first place.

    Which well-run, profitable household name was purchased by CVC and saw "Increased productivity" (ie 10-20% of the workforce being fired) "Like for Like Sales Growth" (trashing the fledgling respect the company was getting in specialist markets by importing cheap tat from China) "Well positioned" (an estimate £180 million of debt) and "Strong supplier relations" (repeated rumours of an investigation by the OFT )

    What sane, intelligent bank would lend a company without any real assets £400 million to buy a good, profitable company in the hopes of making more by floating it on the stock market several years down the line?

  • Comment number 21.

    Have a good rest Robert, I'm sure you'll pipe up if anything really juicy happens in your absence.

  • Comment number 22.

    It is being reported in the Telegraph that around 200 Barclays bankers will share a whopping 150m windfall, as a result of this deal.
    Apparently, the 4.7m for Bob Diamond will help make up for him forgoing last years' bonus - he had to manage on a paltry 250,000 pounds salary, bless his cotton socks - oh, not to mention the 7.5m previously committed cash award. In other words, 2008 was not such a good year for Mr Diamond, well, not compared to 2007 when he earned 21m pounds!

    Truly beyond the comprehension of my little brain. How can anyone be worth that sort of money?

  • Comment number 23.

    Like many other people I'm fed up of stories about banks.

    I need to reserve some anger to remind me how to vote at the next GE, not vent it all on this website.

    Peston, please can you some stories on other stuff. And while you're on holiday you might do your bit to stimulate the economy by visiting a clothes shop and buying some decent ties. The ones you've been wearing for the past couple of months would give Jon Snow a run for his money.

  • Comment number 24.

    Is this just a cosy deal that allows the whole operation to be put at arms length to the bank, and once things settle down it can simply reabsorb the entity?

    Not entirely sure it merits a blog entry

  • Comment number 25.

    there is one reason, and one reason only, why Barclays are not now state owned - they lost out to RBS in the battle for ABN Amro - and not for the lack of trying either - sheer dumb luck in other words, so no reason to take them seriously

  • Comment number 26.

    Banking needs to be simplified.

    There are too many variants (should that be deviants?) in the banking process to allow professional chicanery to flourish.

    It is nonsense to sell an enterprise to another party and lend them a whopping chunk of the money to buy the business. THEN have penalty courses to protect the buyer.

    Money in an account is an asset. A loan is a debt.
    A bank must ALWAYS hold at least 110% more money on account than it lends to others. Banks must carry insurance, properly underwritten insurance to cover any potential bankruptcy conditions.

    No gambling with assets.

    End of story.

  • Comment number 27.

    I love the way you "sell" a particular side of the story Mr Peston. When this govt goes, you'll be out on you backside... I can't wait for that day...

  • Comment number 28.

    This message was brought to you by HM Treasury... Isn't time for Peston to get a new job title - official government mouthpiece?

  • Comment number 29.

    AComprehensiveGirl, what i suggest is you run a complex operation that makes billions in difficult times. Simple really, don't know why everyone doesn't do it...

  • Comment number 30.

    John_from_Hendon, it avoided government cash because it was obvious that the strings that were attached to the deal were to start lending to the government's PFI deals to keep them going and to be a political football whenever the government had some embarrassing news to bury. If you think that not going to the government suggests something dodgy - look at RBS and HBOS. PS what you are saying is borderline defamation....

  • Comment number 31.

    moraymint - Barclays has taken exactly zero from the government. I know lying politicians and reporters pretend "the banks" have been bailed out but actually only a few have.

  • Comment number 32.

    Looks more like a sort of sale & lease back to me with a bit of CASH on


  • Comment number 33.

    Dealing off the top of the deck is painful ,so where is the pain and for whom ?

    The financial canal built by the Faustian retentives under the direction of Mephistoffolees wasn't replenished with run off from the fractional reserve banking system and as what was once in it ebbs away ,all that shows above the receeding waterline is a mangled heap of rusting scrap that once passed for the Heath Robinson workings of the perpetual motion moneymaking machine in need of WD40 or the QE'er stuff to cover it up until the next election is over.

  • Comment number 34.

    I see that all the Irish banks have been downgraded to AA2 by Moodys.

    Is this the same Moodys that rated some of the Toxic Debt as AAA?

    Why should we heed them or any other Credit Rating Agency?

  • Comment number 35.

    No. 31. "Barclays has taken exactly zero from the government. I know lying politicians and reporters pretend "the banks" have been bailed out but actually only a few have."

    Every bank in Britain has in fact taken monetary assistance from the government. They have taken that assistance in the form of a substantially increased guarantee of depositors funds. Take that assistance away and virtually every deposit taking bank in Britain would have to close its doors the next day.

    I can't recall ever having heard of a dodgier sounding sale of a substantial asset and I have to wonder what it was that induced the share buying public to push up Barclays' share price today.

  • Comment number 36.

    Barlays have got off lightly in the mess that the Government have made of our banking system. The ishares deal is a good one. It is interesting to note that Barclay's raising a couple of Billion is worth their share price trebling.

    On the other hand, King Gordon continues to make pronouncements about his new banking empire for the glory of us all.

  • Comment number 37.

    #30. laughingblacksheep wrote:

    " avoided government cash because it was obvious that the strings that were attached to the deal..."

    OK, but that does not explain why it was forced to borrow from middle eastern investors at a reported 14 percent, does it?

    Why would it have to pay such an extraordinary high risk premium? It is a commercial operation and would have only done so if the cost of any other means of financing its capital base was even more expensive, wouldn't it? Why? I can't see anything obvious in the accounts to explain such a premium or the need to take only 0.9 bn cash for iShare when the reason for selling it was ostentatiously to get more cash?

    What is your explanation for these very very expensive deals? And by the way the reported reasons stated do not mention being forced to finance PFIs, rather they refer to the increased flexibility - this flexibility is coming at a huge price and we can only assume that this price is for some reason internal to Barclays worth paying, but why? There will be a commercial reason or set of reasons.

  • Comment number 38.

    I've been both a City Trader and a Cleaner (not at the same time, obviously) and what's quite stange is that the difficult job paid something like fifty times less than the easy one - so BD's remuneration, although ridiculous, fails to surprise

  • Comment number 39.

    #37 addendum

    "Analysts at Société Générale have said that Barclays will ultimately need £20 billion of new capital, and that it will need to sell about a two-thirds stake to the British government." New York Times today.

    Doesn't that put a different perspective on this deal and it is I think a reinforcement of my concerns.

  • Comment number 40.

    like I say, Barclays avoided disaster only because they lost the ABN bid battle - just luck, nothing to do with good management - their main reason for not taking Government cash (going instead for other, more expensive options) is to protect their ability to pay excessive boni to senior executives - that's what Investment Banking is all about

  • Comment number 41.

    You deserve a break - we miss your presence on the News - come back I say. I have been a Barclays customer for a very long time and the rather confusing deal they have struck today seems to be the hallmark of the manner in which they treat their customers, particularly when money is tight. Thanks

  • Comment number 42.

    Bank "sells" subsidiary to private equity company... boss gets huge bonus.......... Nothing new being created here just a bucket of money (debt) being pushed around.

    So - despite Brown's promises of a brave new world nothing has changed.

  • Comment number 43.

    I seem to remember that when this sale of ishares was first suggested, a price of some 6 billion was mooted. That was revised down to 4 billion because of the tough market out there for sellers. Then we get to 3 billion. Tell you what, take it off our hands for 0.9 billion and we'll loan you the rest.
    It's good to see the directors of Barclays are still able to liberate cash bonuses from a reputedly profitable arm of their bank.
    Good luck to all Barclays shareholders...I think that you may need it.

  • Comment number 44.

    Another fine example of selling of the silver wear before going cap in hand to the tax payer for another hand out. Any one that thinks because a bank has not yet been bailed out by the tax payer is thriving is deluded, as has been quoted here a number of times there is no bank not affected by this crisis, because they all follow one another like sheep. In my opinion a great deal of fraud has and is still being carried out by those in high places. Has any one called in the police yet?. Better hurry up or the crooks will be long gone, with their bags of swag.

  • Comment number 45.


    The loan to the purchaser of an asset is not exactly an unknown practice, particularly in banking where, after all, lending is rather common. If they hadn't borrowed a large portion of the funds from Barclays, presumably CVC would have borrowed them from another bank or finance house. I can only guess Barclays are charging a pretty penny on the loan and wanted to get in on the deal as part of the sale.

    The other questions you raise are rather more interesting, in particular how desperate Barclays is for the capital benefit (and what other bad news is yet to come) and the bonus to Diamond and his (shall I call them) colleagues for what may well be a bad deal.

    I can't help but wonder that the bad news for Barclays is simply not yet out in the open. The bank is a lot more aggressive in its risk positions, tax aggressive deals and aggressive accounting attitudes than either HSBC or RBS; it's managed to have rather better capital position generally because it's management failed to complete a 'done deal' purchase in 2007 (of ABN Amro) in anticipation of which it raised pots of capital from mostly sovereign wealth funds and middle east investors.

    I simply can't believe that with such a risk appetite, management 'success' through more luck than skill, and what looks like a fire sale of a good business, that Barclays isn't sitting on rather more bad news than it would like to admit.

    Maybe Diamond knows he should take his bonuses now before he too is working for Her Majesty's government...

  • Comment number 46.

    As always Robert,

    Thank you for this thought-provoking piece.

    Enjoy your Easter break. I suspect, there may be worse to come.


  • Comment number 47.

    If Bob Diamond was worth the money he's paid, Barclays wouldn't have to sell off ishares at a knockdown price to a purchaser who Barclays have to lend the money to. Because make no mistake about this, ishares is a good business. When firms start selling off good business' that fit their profile, that firm is in trouble. And to sell it like this is even worse. It seems to me that either Barclays is in bigger trouble than hereto suspected, or they are expecting much more trouble in the markets.

  • Comment number 48.

    Peston you continue to tow the government line and continue to 'blog', I dare say report as that is too objective strange ailments of financial news.

    As I Barclay's shareholder this report infuriates me somewhat. Barclays' funded the iShares sale to instigate a quick and efficient sale. By doing the financing in house at BarCap, there were no fees to paid to a third party investment bank and less chance of a deal falling through. This just reads like a big fundamental misinterpretation of how capital is raised through IB's.

    You also note Barclays' may have to pay CVC £120 million if deal falls through - however, you fail to realise that if another deal was to be negotiated, it is likely Barclays' would obtain a margin greater than this £120 million and thus bank a further profit.

    Another fact worth noting (you didn't), Barclays' holds warrants on future profits. So what you describe as a desperate sell in a buyers market is far from the truth when Barclays' will continue to reap the rewards.

    I also sense not only from yourself but from posters on this blog a sense of longing for Barclays to lose it's independence as a bank. Why? You'll have to pay for it. This confidence sapping reporting is utterly absurd, especially on a matter to which the public would usually take no interest. Peston did you take such a negative outlook when RBS acquired ABN Amro? I think not....and look where that has led us.

    Good luck with a job in a bull market.

  • Comment number 49.

    #26 newsjock

    Your 110% idea is a non-starter. Our system relies entirely on banks lending money based on little or no reserves. How else could the continuous expansion of debt be maintained?

    Everything runs on debt, which is a euphemism for mortgaging our (and our children's) future, in the certainty that if things go wrong prudent savers will always bail us out.

  • Comment number 50.

    more creative accounting by barclays - do they never learn? have a gr8 easter

  • Comment number 51.

    It is Enronesque, but as mentioned vendor financing is not unique and while the debt may be secured on ishare we also need to consider any other credit support/exposures to fully grasp the degree of divesture. Not a great deal but desperate times call for desperate measures, and no doubt the loan can be sub-participated; since Barclays share price has responded positively to every step taken by management to avoid gordon's clutches, well that tells you another story.

  • Comment number 52.

    In defence of Barclays, they are managing to sort out their own problems without falling to their knees in front of HM Government. The thing is as well, what they have to sell is still appearing to be some kind of lucrative investment for someone else, rather than poisonous debt.

    Happy Easter Robert.

  • Comment number 53.

    A bank that just can't help itself but add to it's debt.. I mean assets. A bank that claims it has superior risk management than it's rivals. A bank that claims it has a level of probity above that of it's sector.

    Where is this deal different to the crazed undervaluing and illegal kickbabcks from IPO's of the tech boom? This deal is clearly legal but reaks of the presently legal but bad practice deals at Enron and Worldcom; not their even more dodgy practices. Driving acquisition/wealth creation through asset price linked debt.

    Who benefits? Not Barclay's shareholders who've just lost one of the most profitable parts of the bank. Oh yeah that might be the directors who've hugely undersold a business but all retain an interest so when it get's sold at market price they make millions more. Ha a new dawn in banking. Where is that different to underpricing an IPO, selling the stock to a client and demanding a kickback from the profits? One's legal and one's illegal but both are designed to stiff holders of common stock. Who benefits?

  • Comment number 54.

    So they, the bankers, are still at it. They sell something to someone by lending them most of the money to do it.

    The top brass pocket loads of cash as a “bonus” for doing such a good job, and the bank has created a profit and capital out of thin air.

    How long before they buy it back? Or lend someone else the money to buy it and make another “on paper” profit and more bonus. And so it goes on until at some point they are asked to come up with the real money and Ho! Sorry we haven’t got it! We have made a XXX Billion loss and could you bail us out of this mess.

    Nice story Robert! Still about banking, but if that’s all you know about, I guess that’s all you can write about.

  • Comment number 55.

    KenHarvey, hate to break the news to you but the "guarantee" is pointless and worthless. Pointless because most of the deposits are not retail but wholesale deposits which the government is NOT guaranteeing and worthless because the government simply cannot make all the retail deposits whole - it doesn't have the money - and if you paid attention you'll see they didn't actually formally say they would make you whole upon collapse, they said your money was "safe".

    Dodgier sale? It is almost certainly a tax avoidance measure. You sell at par - so there is no CGT and you "lend" the money which is then given to you so there is no principal risk and you bump the interest level to make up the difference.

  • Comment number 56.

    SelfStyledBanker, what makes you think Barclays is "desperate" for capital? From what i can see, Barclays has played this crisis perfectly. They rightly avoided the clammy grasp of the government who are in the process of destroying the banks they own. They were laughed at when they raised "expensive" capital - mostly by this "reporter" - but now they are sitting pretty whilst RBS and Lloyds have to lend to dodgy PFI deals to keep the government's support intact and so we can pretend for another year that things are great in the UK. After the election who cares?

  • Comment number 57.

    #37, Firstly, Barclays didn't raise cash at that cost.

    Secondly they raised it in the aftermath of the collapse of LEH and most people were lucky to raise ANY capital. The fact that they could was a vote of confidence. At the time, people - such as this "reporter" - laughed at BARCL for paying that amount but one only has to see the damage the government inflicted in Lloyds to see how smart the bank was. As usual the government was lying about "hands-length" management. The commercial reason is that it doesn't want to be forced to lend to worthless government initiatives - as RBS and Lloyds are being forced to - and to spendthrift mortgage holders - such as NR.

    Finally, the deal is probably structured this way for tax and accounting purposes. Why sell for 4 billion and give away 18% in tax when you can go through this and pay zero? I suspect that Barclays doesn't need the cash rather it needs the perception that it has the cash.

  • Comment number 58.

    #39, NYT? give me a break, their reporter is the only person who makes Mr P look like a finance guru. Also the SocGen report is well over a month old. Government wants Barclays as it's prison b*tch. Expect more spin in the near future.

  • Comment number 59.

    @ 55

    It is almost certainly a tax avoidance measure. You sell at par - so there is no CGT and you "lend" the money which is then given to you so there is no principal risk and you bump the interest level to make up the difference

    ooo, how about that? ... clever little bankers!

  • Comment number 60.

    for the record i appreciate the silence if robert is skiving off!!

    however i feel i must comment on this given the negative spin robert is spinning again.

    robert has mis led the blog viewers on this occasion because barclays wasnt desperate for capital!!

    the board felt it was a good deal for the bank and shareholders and to say or imply the sale was soley cash motivated is a lie.

    the i shares sale is good deal for the bank as a business given the continued rise in its share price since a possible sale was announced many weeks ago,it also allows i shares

    robert needs to stop making the same negative spin about barclays the way he does about the now government owned banks lloyds group and rbs.

    barclays are nothing like them in the way they run a business and never will be.

  • Comment number 61.

    Tatruth, typical dumbo statements with a complete ignorance of finance... you sure you are not a business reporter for the NYT or BBC?

    The sale hasn't added to BARCL debt, it has added to CVC's but hey who cares about facts right?

  • Comment number 62.

    Might I suggest 2 things for people to do before forming an opinion on Roberts "report" :
    1 - Look at post 48 for the exact way that this deal works and not just the bits that Robert has picked out so as to kick Barclays yet again (no matter what this bank does Robert thinks its wrong)!
    2 - A few weeks ago Barclays financies and capital reserves were put under an "extreme stress test" by the FSA prior to any participation in the Govt's APS. Barclays did in fact come through this with the FSA reporting back that the bank's financies were in very good shape. I certainly do not remember Robert posting this news on his blog probably because it was a bit of good news about a British bank and further proof that Barclays have been able steered a good course through all of the madness of the last 18 months.
    Robert it is time that you started to focus on getting good news as well as bad out to the public and to stop this continuous knocking of the banks so as restore confidence in the system, our economy and thus getting us out of this recession quicker which will be a benefit to everyone. Have a good Easter.

  • Comment number 63.

    Forget about all the detail of this, on the holiday weekend the next step on the personal agenda of disparaging the whole UK banking industry piece by piece is being planned.

    First Northern Rock,then with the scent and taste of "blood" still on his lips it was generically "Banks" then turning the heat back on the individual institutions RBS and Lloyds,looking for yet another scoop and whipping up yet more frenzy.

    HSBC will be next on his agenda for their global empire building and if the Building Society industry feel safe then the big boys like Nationwide had better watch won't be long before he exposes the biggest scandal of them all. Some ............ offices are found to be opening early.. "how dare they do this without consulation and our agreement" ? cry all the public...... after reading claims of "unfair competition" in a daily blog.

  • Comment number 64.

    It is always amazing the lengths people will go to delude themselves that things are alright.

    If I were a Barclays Shareholder I would be asking about BGI, and why Bob Diamond was making so much monewy on the side whilst working in the interests of the Public (PLC) Shareholders.

    Of more curiosity, is why Investors buy Shares in Companies that are lossmaking, deeply in debt, and with declining Sales (and in this Climate, not likely to recover any time soon).

    Sometimes the Herd mentality of Investors is a triumph of optimism (or gamblers desperation)over reality, with the last one in, paying over the odds, and losing out when the lead investor chooses to sell !

    But like a Herd little thought is really given to their investment decisions, and crucially almost no thought is given to how the Directors are actually running the business.

    This is one reason ,mentioned by others many times, why the Banks got away with the Foolish risks they took.

    The only way to deal with this is to have proper regulation of the Banks by Govt, otherwise the wheelers and dealers of this world will soon be dreaming up new ways to rob their Customers, Shareholders etc, etc and line their own pockets with big bonuses..........

    I wonder just how long the Bear Bounce will last, before the shortsellers ceasefire is called off !

    Perhaps the Hedgefunds are on their Easter holiday, and when they return they will wield their disproportionate shortselling power to make another couple of yachts for themselves.

    Be ready for a rollercoaster ride after Easter !

  • Comment number 65.

    I hope Barclay stays private. It is just as dangerous and unwise to have too much control in "government" hands as letting the banker and bankers do what they liked over the decades. National ownership and control is just a ruse and a cover. Anything "owned" by the public and claimed to be in the "public" interests never were, never are and very unlikely ever will be. It will be an opague few, whose heart and loyalty we don't know, who are controlling those banks now wholely or partly owned by "us".

  • Comment number 66.

    laughingblacksheep (Various/Numerous postings)

    Did you read about the Barclays tax avoidance schemes outlined in recent weeks in the press? Do you think that that might not have something to do with the banks reluctance to accept apparently relatively inexpensive money from HMG. Then this would explain why their apparent perception of the cost of the money from HMG is far higher than the apparent cost. This in turn suggests that the tax avoidance schemes undertaken are far more extensive and important to Barclays than they appear on the surface. I cannot help but think that there must be a sound commercial reason for not taking HMG money (even though people like Société Générale think that they will need to take £20bn, eventually.)

    Can you, as a strong and outspoken supporter, of Barclays' management provide another explanation to the concerned doubting Thomases out here?

  • Comment number 67.

    My grandfather bought Barclays DCO shares in the 1940's, and I remain a small shareholder. It would be a relief if Barclays can continue to contribute to my (much reduced) retirement income.

    I am all in favour of this deal if it enables Barclays to regain its composure and stay out of Brown's clutches.

  • Comment number 68.

    Quite a price Barclays are paying, in order to retain their freedom to continue their 'tax schemes' business line !

  • Comment number 69.

    #62 bankbiz wrote:

    "...Barclays financies and capital reserves were put under an "extreme stress test" by the FSA..."

    So now we all believe that FSA are competent? After all they were one of the regulators who got it so very wrong and substantially contributed to the crash in the first place and they have as yet not changed their spots!

  • Comment number 70.

    Robert, it seems that the share value of Barclays has risen sharply with news of this deal, does this not mean that the sale actually benefits the shareholders and Barclays?.

    Could someone explain to me why this is such a bad deal?. The only argumentation against the deal seems to be the financial gains that some of Barclays staff will receive.

  • Comment number 71.

    Enjoy your Easter Robert

    Short term share price gains are not necessarily a sign of a good deal...

    Really this deal shows how desparate Barclays are for cash. Where is the FSA in this instance as loaning money to someone to buy an asset of you has obvious moral hazard problems even before you get to managers making a big profit out of it.

  • Comment number 72.

    Oh, I forgot to add my trademark call:

    Forty Percent rise for the Public Sector !

    Lets inject some Consumer demand back into the economy by actually putting money into the pockets of ordinary people!

    Govt policy at the moment is to suck every last Shilling nay every last Farthing out of the pockets of the ordinary folk (thro low deposit rates, high cost of living Inflation, but low pay deals etc).

    This Polciy is doomed to failure and the UK is doomed to stagnation whilst it is in operation (declining sales and falling employment creating a vicious circle of further declining Sales).

    I do get tired of endlessly giving out good advice that just gets ignored!

    Maybe I should just have some fun ?

    I should get out more.......

    Looks dull and overcast here, not quite Stormy yet.

  • Comment number 73.

    The question is more why Robert is trying to rubbish at any cost Barclays while hiding the scandal of the APS scheme. Everybody knows that Lloyds did not get a penny through the APS scheme, transfer basically no risk but had its capital ratio artificially increased? So Robert why are you trying to hide this intead of reporting honestly what is happening?

  • Comment number 74.

    John from hendon..... what the FSA were or were not doing before the crash is very well documented and I know that they were incompetent in their handling of regulation (regulation written by Govt and the EU) however they have received an almight kick up the **** and their current focus is to ensure that banks capital positions are in excess of regulatory requirements (well in excess in fact). If everyone started to focus on how we are to recover from all this for the better instead of harping back to the mistakes that have lead us to the situtation we have found ourselves in then our recovery will be much quicker and we will have a stronger set of regulations in place to hopefully prevent a repeat performance.

  • Comment number 75.

    Cheers for the enlightening facts. Did Barclays benefit from the : Special Lquidity Scheme, swapping over the medium term mortgage-backed loans for govt liquidity to create emergency stability for them; Credit Guarantee Scheme, guaranteeing their money-market operations ? If so, we have given them the lifelines to survive. Sure, they will say they have paid handsome fees for the privilege, and then neatly passed them back to us.Enterprise Finance Guarantees also enable the banks to profit from secured lending via HMG.Asset Purchase Facility / QE is allowing HMG to buy crdedit guarantee paper issued by the banks - yipee for them and profits/bonuses will follow.

    I have been told that that Barclays and others are paying over 3 month libor for money on the interbank market, say 1.75%. To lend to us, they apply their margin at, say, 3% - meaning we are paying real rates of 4.75% for loans when base rate stands at 0.5%.If the business is riskier, the rates are higher.

    How is QE working to bring rates down?What's happening to restart the securitised debt markets? Lets have some real reporting on this acidic problem making everything worse after your hols.


  • Comment number 76.

    this article just shows that our banking industry is inept and poorly run, if its not time for the government to step in and take control then its far too late.
    banks in recent years seem to have been driven by greed and profits now with so many struggling due to their misshandled policies, let alone over paid top executives that drove the banks to collapse.
    our governments inept regulation is partly to blame becouse due to its lack of control.
    sadly unless the banks can proove themselves compitent before too long they may as well all close up, claim bankrupcy.

  • Comment number 77.

    It is worth remembering that the Shifting the Buck onward sale of securitised Mortgages and Loans is what brought the Banks low in the first place.

    For example Bradford and Bingley and their deal with GMAC.

    Now Banks (and others) are exposed for selling on their dodgy loans to Debt recovery Agencies (ie washing their hands, outsourcing their responsibilities).

    This like Mortgage/ Loan securitisation needs to be stopped or at least very tightly regulated (I would opt for stopping).

    Banks can raise money through the issue of Bonds, but why should they sell their Customers Mortgages to others? And why would they wish to buy Mortgages and Loans of unknown quality from other Agencies or Banks?

    We need to return to the 1950's model of Banking (and they used to make good profits back then).

    All this messing around with securtisation and creative accounting (dodgy accounting) is what has created this mess in the first place.

  • Comment number 78.

    More Government sponsored spin from Mr Peston. He, Cable et al just can't stand the fact that Barclays continues to work towards putting it's *own* house in order without having to submit to nationalisation or other interference from Brown and his discredited, inept cronies.

  • Comment number 79.

    Bankers really don't have a clue, do they?
    And those pompous, no-nothing farts in their fancy suits sit in their offices deciding which of the business plans of entrepreneurs are to receive their stamp of approval and a loan.

    "Thank 'ee, guvn'r, most kind I'm sure...."
    (touching forelock and backing out of the manager's office).

  • Comment number 80.

    ahoy there Navy Seals

    as #55 laughingblacksheep notes, a lot of what Barclays do is related to tax avoidance strategies, which is one of those 'elephant in the room' things

    As extensively reported in the Guardian last month, and on a million internet websites afterwards, Barclay's SCM run a very large and lucrative department that specialises in this area

    If they were to take the Govt shilling they would almost certainly have to close it down; that may be why they do these other deals which are arguably much worse for their shareholders than you would expect

    I assume Mr Peston doesn't mention Barclays Structured Capital Management (SCM), even though their existence is central to their thinking on all this, because it was somebody else's scoop and he's miffed about it; but it makes his blog of dubious use if it is just an unbalanced bit of op-ed on most days

    And the banking stories have become soooooo tedious; he is clearly NEVER going to report on manufacturing, SME, construction, infrastructure investment, unemployment, pensions or any of the other 20 or so things that are also vitally important

    Anyway have a nice Easter everyone

    I see that Britain came bottom of the league (or is that top?) for the most negative, depressed and worried about the future, so Peston's banking blog may be contributing something, though I suspect useless political parties, class system and housing obsessions are bigger factors; even the weather hasn't been that bad, though now that the cricket season is starting I presume snow flurries and rain are imminent

    All this is rather discouraging for a pirate, who likes to be jolly and feel the sun on their back, so I've started my own countdown before relocating; only 23 days until I sail off to my Canadian backwoods bolt-hole for the summer; a bit of fresh water piracy on the Great Lakes, where there is a surprising amount of shipping, lots of smuggling, lots of pleasure craft, and no Navy should cheer up the crew

    What do you call an Albertan pirate?

    A jolly tar

  • Comment number 81.

    #75 shireblogger

    "......What's happening to restart the securitised debt markets? "


    Securitisation is surely a discredited concept now.

    How secure were these AAA packages? Not at all.

    They should be banned just because they are near to impossible to value.

  • Comment number 82.

    #74. bankbiz wrote:

    "If everyone started to focus on how we are to recover from all this"

    Totally agree, but do you also think that the regualtors that have proved themselves to be 'incompetent', as you put it, are suitable people to be responsible for, or even capable of, running a system that is supposed to put things right? - I do not.

    Looking forward: clearly re-inflating a property bubble is a non-starter as a 'solution', or even part of a solution, that can lead to a recovery (no matter how you define it). But unfortunately, the shibboleths of the past are still being presented as indicators of green shoots of recovery. (viz house prices going up in the recent Nationwide survey)

    My benchmarks for a recovery include: reasonable long term interest rates (i.e. up to between 4 to 6 percent), stable banks with sensible balance sheets and honest tax paying, unemployment below 1.5 million - honestly measured, house prices at around 3.5 times earnings over the country - just for starters!

    We have the problem that it is almost impossible to see a way to get from where we are today to this position in less than a decade. We can't squeeze the public sector or the taxpayer hard enough to finance all of the bailouts without letting (uncontrollable) inflation rip. My guess is that the absolute maximum that is squeezable/taxable is no more than 60bn a year and even that, without inflation at a very high number, will take a very long time (over a decade) to recover the situation that has already accumulated in the last six months.

    So I see no other path but to manage quite a bit of inflation and quite quickly through quantitative easing or whatever - but this is exceedingly risky to the currency and very difficult (actually almost impossible) to manage.

    The other persistent problem is that in maintaining zero interest rates for any longer that absolutely necessary we risk destabilizing the long term capital markets - to say nothing of destroying our pension funds!

    Another problem is the effect on asset price deflation that results from not making the banks bankrupt when that in all honesty that is what they were. (This prevention of bankruptcy is preventing the fire-sale dumping of assets on the market and delaying their necessary downwards re-pricing and this in turn keeps the related asset prices over-priced and this in turn prevents the economy recovering more rapidly.)

  • Comment number 83.

    John_from_Hendon (#69) #62 bankbiz wrote:

    "...Barclays financies and capital reserves were put under an "extreme stress test" by the FSA..."

    So now we all believe that FSA are competent? After all they were one of the regulators who got it so very wrong and substantially contributed to the crash in the first place and they have as yet not changed their spots!"

    Bankbiz goes on to rightly say (almost as it exonerated the FSA, banks and HMG), that this was indeed HMG/EU/USA policy. But note the FSA was set up by HMG and the key legislation (like the USA 1999 legislation which broke down their banking system firewalls) and staffing mean its staff:supervisee ratio was, and still is, far to low for any effective regulation to be done, and nothing has changed!. This has been said by the FSA and by others has it not? So, are we not just seeing a load of bluster about blame (cf. Mysners in the Treasury Sleect Committee fo an example par excellence) which the pathologically self-interested can afford given their obscene salaries/pensions?

    I have a serious public appeal to make to the Pestons, Flanders and Masons out there:

    How about doing some serious, expository, investigative journalism over an extended period to drive home to the trusting public what really happens to their assets in ISAs and Share Nominee Accounts, Pension Funds etc, where the public are only the Benficial Owners of their assets, not the literal owners (those being the banks/fund managers) who lend their clients' assets to short-sellers, therefore playing the markets for their own profit, at their clients' expenses (quite literally), whilst also having the chutzpah to charge clients for this 'service'. If anyone wants to appreciate how and why the stock markets have been so volatile and going nowhere in terms of capital growth in recent years, and why so many people have lost so much, this surely would be a very good place to start looking?

    I would be happy to be corrected on this by anyone, as at present, I regard this as venal (but legal) white collar predatory 'criminal' behaviour, where the law has been written specifically to alter the perception and 'reality' of what is regarded as crime. The 'financial service' sector has preyed upon the trust which innocent people used to have in banks and regulators.

    bankbiz (#74) Any comment?

  • Comment number 84.

    56. At 09:11am on 10 Apr 2009, laughingblacksheep wrote:
    ...... Barclays has played this crisis perfectly.... but now they are sitting pretty....
    Sounds like tempting fate making statements like this! I'd sell my shares straightaway if I had any.

    62. At 10:12am on 10 Apr 2009, bankbiz wrote:
    ....... Robert it is time that you started to focus on getting good news as well as bad out to the public and to stop this continuous knocking of the banks so as restore confidence in the system, our economy and thus getting us out of this recession quicker which will be a benefit to everyone.
    You expect reporters to report good news? A little naive surely? - it so much easier to find the bad news as there is lots of it about (and worse to come if Soros is to be believed)

  • Comment number 85.

    84. At 12:44pm on 10 Apr 2009, _gemba wrote:
    56. At 09:11am on 10 Apr 2009, laughingblacksheep wrote:
    ...... Barclays has played this crisis perfectly.... but now they are sitting pretty....
    Sounds like tempting fate making statements like this! I'd sell my shares straightaway if I had any.
    See link below - downgrading of certain Barclays debt.....

  • Comment number 86.

    Peston likes to make reference to the banks "miracle accounting" but William K. Black likes to call a spade and spade and tell it for what it is - fraud.

    I see from some of the comments over the week that alot of you have seen the interview Black did on April 3rd. He did a new interview on Monday (April 6th) that is also worth a listen.

  • Comment number 87.

    86. At 1:24pm on 10 Apr 2009, jd6969preston wrote:
    Peston likes to make reference to the banks "miracle accounting" but William K. Black likes to call a spade and spade and tell it for what it is - fraud......
    Your links leads to another link, see below, and at last I think I understand how these structured investment vehicles can be so easily optimistically rated.
    The way they are constructed produces an unintended magnifier effect such that slight rises in mortgage default rates can causes losses out of all proportion to the original "butterfly".
    Surely investment bankers should run scenario software models before releasing these timebomb products on the public?

  • Comment number 88.

    The vast majority of the above comments demonstrate that most people do not understand banking. This is hardly surprising as banking is not like any other business. When a customer goes to his bank for a loan of, say, £1,000 the bank puts £1,000 in his current (cr) account and the £1,000 becomes a loan (dr) account. According to some that is creating money. But the bank cannot go on doing that without the capital requirements necessary to enable that loan to be made.
    In simple terms, out of every £100 deposited in the bank about £10 has to be retained to keep cash in the tills and to cover running costs. That leaves about £90 which the bank may lend, provided that the total amount of all monies lent is below the ratio of lending against capital that is required, formerly by the BoE and now the FSA, in meeting what are referred to as Tier1, 2 & 3 requirements. There are other considerations but the above is aimed at keeping it simple.
    The need for sufficient capital is therefore a vital component of how much any bank can lend. Put simply that capital consists of the shares in issue plus the total of all deposits held. Customers can withdraw those deposits and if enough of them do so at the same time then we see a run on that bank (the cash in the tills would be roughly 10% of what is needed). And that is where the essence of banking comes in - the risk factor. Risk is the prime concern of every real banker. Unfortunately we have seen the banks 'taken over' by businessmen who are not bankers (a few of them were but they decided to ignore the vital importance of risk). Banking cannot recover completely until those in charge are of the old school of so called boring bankers, those who understand and work with risk as their prime concern.

  • Comment number 89.

    JadedJean # 83 - a post I completely agree with. But I'm not expecting anyone to do the work, or maybe I am too cynical?

  • Comment number 90.

    Here is the situation:

    * CVC wants to buy iShares for £3bn.

    * Barclays accepts £0.9 bn upfront, and takes a rate of interest (eg L+3%) on the remaining £2.1 bn.

    * The remaining £2.1 bn is SECURED against the iShares franchise, so if CVC can't pay up, Barclays seizes the business back.

    Ergo, Barclays now has less risk on their books, since cash came in through the door, and they do not lose money if iShares goes bust, only if CVC and iShares go bust *simultaneously*.

    Less risk = lower capital required. Sadly very few posters here even know what bank capital is, let alone have the required understanding to comment in an educated manner.

    This isn't dodgy accounting in any way, shape or form, and as others above have said is a common method of vendor-financing.

  • Comment number 91.

    #88 SovereignJaguar

    I totally agree, it would appear that Barclays are embarking on the same path that they were on prior to the financial crisis.

    I don't think it's 'miracle accounting' at all, I believe it's recklessness and they justify it by claiming not to have 'failed' just because they haven't turned to the government for money... yet.

    Unless the G20 governments look to stamp out the transference of money between subsidiary firms within a group thus creating the illusion of creating money, we're headed for more problems.

    The G20 achieved nothing, if the agenda could be summed-up in one question it would be 'How do we reinflate the bubble (and save our political careers)'?

  • Comment number 92.

    Don't you just luv 'em? The bankers are still in denial about how they have brought the economy to its knees and Teflon people like Bob Diamond will receive £4.7m in cash for a sale that ain't a sale. Of course it's a disgrace but while these people are apparently untouchable they will keep on behaving in this way without butter melting in their mouths.

  • Comment number 93.

    #83 JadedJean

    Presumably you know that The Guardian undertook the type of project that I think you're suggesting for (legal) tax evasion.

    The banks/financial institutions (mentioning no names) were some of the main culprits responsible for recruiting highly qualified, highly paid and well staffed teams to keep hundreds of steps ahead of the Inland Revenue. Why? Because it contributed enormous profits.

    It's the same for the FSA although it would be great to have the publicly owned BBC undertake an investigative project in our interests rather than always leaving it to left-of-centre newspapers to carry the costs and potential litigation.

  • Comment number 94.

    90. At 2:57pm on 10 Apr 2009, horreur wrote:
    Here is the situation:
    ..........Sadly very few posters here even know what bank capital is, let alone have the required understanding to comment in an educated manner.
    Whoa there...
    In any selling activity there are only 4 possible outcomes:
    1. Unhappy seller, unhappy buyer (government take over of banks)
    2. Happy seller, happy buyer (illegal drug dealing)
    3. Unhappy seller, happy buyer (fire sale)
    4. Happy seller, unhappy buyer (Tesco)

    So in the case of the iShares deal which is it, who is the patsie or are they just "drug dealing"?

  • Comment number 95.

    #90 horreur

    Fine, you're obviously far superior in knowledge, however, a bank selling a part of itself to a private equity firm and lending them the money to do it doesn't sound right 'vendor financing' or not.

    Haven't you realised that the game is now up? If Barclays hits big trouble and needs money, we, the taxpayer, will have to stump-up even if the government let it fall - because the government has insured deposit.

    Just how much will it cost for Barclays to demerge iShares and seize the business back if CVC can't 'stump-up' (let's face it, it's possible)? Yes, I know that it's tax deductable for Barclays if CVC can't pay, however, that means we have to pay.

  • Comment number 96.

    this is not an arm's length commercial transaction, it's a piece of what they tend to call Financial Engineering - a misnomer of the first degree since absolutely nothing is created - and if nothing is created but some people get (say) five million pounds richer, then somebody else is poorer by the same amount

    you can guess who that somebody is, can't you?

  • Comment number 97.

    New Gerald Celente interview from yesterday.

  • Comment number 98.

    Obama just said there are "glimmers of hope" in the economy. That will be the que for Crash Gordon to come out now and say something similar in the coming days.

    Larry Summers who is one of Obama`s top economic advisors spoke in Washington yesterday and said the recession could be over in a few months time.

    Things change quickly when they change the rules and allow the banks sweep the dodgy assets under the rug or shift them onto the shoulders of the taxpayers. I can't help but wonder if some of this is going to come back and bite us in the a$$ further down the line.

  • Comment number 99.

    #88 SovereignJaguar

    "The vast majority of the above comments demonstrate that most people do not understand banking. "


    I will put my hand up to that. I have tried to get up to speed. I have seen 'Money as Debt' and have carefully read all of the posts for some time.

    It appears to me the a lot of bankers do not understand banking and a lot of people who are not bankers (FSA) do not understand either.

    How else did we get in this mess. If I am wrong and this was deliberate then no punishment could be too much for the misery caused.

    It is not enough to say this is Global. We should have been keeping our own house in order.

    'Miracle Accounting'. 'Vendor Financing' Are these official accountancy terms?

    #96 sagamix has a strong point. Why should anyone get five million GBP when nothing has been created?

    The City seems to be like the Wild West.

    When are the Marshalls going to show up?

  • Comment number 100.

    Barclays iShares deal is a wonderful example of Creative Accounting - do the shareholders understand what the Board are cooking up or perhaps the temporary increase in share-price is clouding their judgement.


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