Update: Barclays boosts capital ratios in BlackRock deal

12th Jun 2009 03:18

Barclays has sold its fund management arm, Barclays Global Investors, to US asset manager BlackRock for £8.1bn ($13.5bn). BlackRock will pay $6.6bn in cash and the rest in shares for the unit which includes the iShares business, which Barclays had previously agreed to sell to private equity firm CVC Capital Partners in April for $4.4bn. Under the terms of an agreement with CVC Barclays had until 18 June to find a better price for the sale of its iShares unit. Barclays will retain around a 20% equity stake in the enlarged BlackRock business, which will be renamed BlackRock Global Investors. The two parties have committed to deepening their ties in investment banking and wealth management, with John Varley, Barclays Group chief executive, and Robert Diamond, Barclays Group president and chief executive of Investment Banking and Investment Management, to be nominated to the board of directors of BlackRock. The deal will make BlackRock, a relative newcomer to the industry with a 21-year history, the world’s largest money manager with assets of $2,700bn. BlackRock will fund the transaction by selling $2.8bn of equity to institutional investors, while a further $2bn will be raised through loans from Barclays and other banks.The capture of iShares will give BlackRock a major presence in the fast growing business of exchange traded funds. Exchange traded funds (ETFs) accounted for $375bn of Barclays Global Investor’s assets as at the end of May; the company claims to have a 48% share of the ETF market. For Barclays, the deal represents an opportunity to improve its capital ratios, Based on the closing price of Blackrock on 11 June 2009, Barclays would expect to realise a net gain on the sale of US$8.8bn (£5.3bn), which would add an estimated 163 basis points (1.63 percentage points) to the banks Equity Tier 1 ratio and 150 basis points to Core Tier 1 capital ratios as at 31 December 2008.Together with the conversion of the Mandatorily Convertible Notes issued in November 2008, Barclays would have reported an estimated Equity Tier 1 ratio of 8.3% and Core Tier 1 ratio of 8.0% as at 31 December 2008 on a pro-forma basis, the company said.Barclays added that since its last trading update it has completed certain liability management actions, which, collectively, will further enhance Barclays Equity Tier 1 and Core Tier 1 ratios.