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Barclays considers iShares sell, shares surge

Latest update : 2009-03-17

Barclays confirmed on Monday that it had held talks on selling iShares, part of its fund management arm, to finance its risky assets. The British banking group also said it has enjoyed strong trading so far this year. Shares surged on the news.

REUTERS - British bank Barclays Plc said it is considering selling iShares, part of its fund management arm, and said it was trading strongly, sending its stock up by more than a fifth.


"Barclays ... confirms that it has held discussions with a number of potentially interested parties as part of its practice of regularly reviewing the group's portfolio of businesses," the bank said in a statement on Monday, adding that it had not decided whether to proceed with any disposals.


An exchange-traded funds provider, iShares is worth up to 5 billion pounds ($7 billion), weekend media reports said.


Analysts estimated a valuation nearer 3 billion pounds, which is still more than one third of Barclays' market value.


Barclays had approached a small number of potential buyers, one bank industry source said.


Barclays could use the proceeds of any disposal to cover the cost of joining a government scheme to insure banks against losses on risky assets.


A sale could also remove the need for the bank to sell new shares, or issue them directly to the state, analysts said.


That would enable Barclays to avoid surrendering a stake to the government, in contrast to rivals Royal Bank of Scotland (RBS) and Lloyds Banking Group, who have handed majority control to the state in return for financial assistance.


"If this is the case, they could bullet proof the balance sheet and there'll be no government stake, which is invaluable," said Fox Pitt, Kelton analyst Pawel Uszko.


By 1610 GMT, Barclays shares were up 20.4 percent at 89.1 pence, valuing the bank at about 7.5 billion pounds, and outperforming a 2.4 percent rise by the FTSE 100 share index.

Capital pressure

Barclays confirmed that it was in talks with the government about joining the asset insurance scheme, under which the state insures banks against losses on risky debt-related assets in return for a fee.


The bank said it would decide whether or not to take part based on "the economic merits to shareholders".


Joining the programme would strengthen Barclays' capital reserves, which are currently lower than those of rivals who have accepted government money or launched rights issues.


Barclays so far has avoided accepting government help because it feared doing so could compromise its commercial freedom.


The bank last year raised 7 billion pounds from Middle Eastern investors in preference to taking government money.


Lloyds and RBS, which gave ownership stakes to the government as part of a 37 billion pound bailout last October, could see the state's holdings in them rise to as much as 77 percent and 95 percent, respectively.


Sees strong start to 2009


Barclays also said it had enjoyed a strong trading performance so far this year, echoing upbeat comments last week from U.S. lenders Citi, JP Morgan and Bank of America.


"With apparently positive operating trends ... this stock feels oversold, in our view," Collins Stewart analyst Alex Potter wrote in a note.


Barclays is handling the iShares sale process itself, two banking industry sources said.


Part of its asset management division, it provides exchange-traded funds which track a benchmark, asset or a basket of shares and allow investors to bet on the direction of share price indices.


The iShares business had 226 billion pounds under management at the end of last year, representing 22 percent of the just over 1 trillion pounds of assets managed by Barclays Global Investors.


Barclays was also confirmed on Sunday as one of the main recipients of funds from U.S. insurer AIG. The UK bank received $8.5 billion in payments.


Date created : 2009-03-16