Barclays to sell 20 % stake in BlackRock

by Paul Wilson | Sunday, May 20, 2012 | 692 views

Barclays, the British Bank, will be selling its entire stake in U.S asset manager firm BlackRock, with tough global regulations cutting the attraction of holdings of such type. The 20 percent stake that is currently held by Barclays is worth $6.1 billion.

The BlackRock stake has been held by Barclays for three years, which comes as a legacy of $13.5 billion purchase by BlackRock of the Barclays Global Investors. However, the Basel III regulations imply upon banks to hold more capital compared to minority stake in asset manager firms, making them less profitable.

Given the current regulations, it has become very difficult for the banks to keep generating profit and make respectable return on equity. Deleveraging and pursue of transactions like this one for improving capital ratios, have become a common sight.

In its statement Barclays said that the selling of the stock would be through an offering along with a buyback of $1 billion of stock by BlackRock. The price of the shares will be finalized in a couple of days after bookbuilding is completed.

Barclays at present, holds common and convertible stock of 19.6 % in the firm, which in terms of shares is 35.2 million in number.

The buying of the BGI was done in a cash and share deal in 2009, making Blackrock the largest money manager in the world by doubling its size. The deal was profitable for Barclays, as they got the necessary boost in terms of capital at a time when most banks were under real strain. With its 7.1 % stake, Blackrock also become one of the largest shareholders in Barclays. On the future of the BGI holding, Barclays said that was a matter for BlackRock to consider. No comment could be obtained from BlackRock on the issue.

Barclays capital, Bank of America Merrill Lynch and Morgan Stanley are the joint bookrunners for the deal. Balckrock filed a prospectus on Monday.

The shares of BlackRock closed last Friday at $171.91. Shares of Barclays were up 2 % in mid-day trading amidst ad rather flat banking index in the European markets.

With the coming in of Basel III, the questions on the sale were always rising, and now it has happened. Barclays, however, did not tell about its plans with the cash obtained from the sale. The decision of selling the stake by Barclays, under CEO Bob Diamond, is to get the RoE back above the 13 % mark through the sale or close down of investments and sectors that have not been measuring up. Other banks like Rabobank and Deutsche bank are also selling or planning to sell off similar investments, given the current global conditions and regulatory environment.

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