Saturday, 11 April 2009

Barclays faces tough iShares questions

Barclays is likely to face more tough questions from shareholders over its decision to sell iShares after the buyer said it would look to float the exchange-traded funds business as soon as stock markets recovered.

CVC Capital Partners, the private equity group that has agreed to buy iShares for $4.2bn (£2.9bn), said it would be a good candidate for a stock market initial public offering. The highly profitable business is the world's top provider of exchange-traded funds, which allow investors to track share indices.

Jonathan Feuer, head of CVC's new financial services team, said: "As a market leading company with attractive growth potential, it is a very attractive flotation candidate . . . people that invest in shares are likely to want to invest in iShares too."

The iShares sale will help Barclays shore up its balance sheet and avoid turning to the UK government for capital. Barclays' shares rose 12.5 per cent to 177½p on Thursday's announcement of the deal amid a broad rally in banking stocks. The bank's shares have risen three-fold since their January lows.

Investors may grumble that the bank is hurriedly selling one of its best assets at a depressed price, especially if CVC floats iShares quickly for a big profit.

Bob Diamond, Barclays' president, is set to pocket $6.9m in cash from the sale of iShares.

As head of Barclays Global Investors, the bank's fund management division, Mr Diamond is one of the beneficiaries of a compensation scheme that has given BGI employees shares and options over as much as 10.3 per cent of the division's equity.

BGI is expected to distribute the cash from the sale to its shareholders in the form of a dividend. Barclays stressed that Mr Diamond was not involved in the iShares sale negotiations. The deal values iShares at about 10 times its pre-tax profits of £288m in 2008.

The business increased assets under management by 10 per cent to £226bn last year, even as BGI's assets fell. Barclays' directors are up for re-election at the bank's annual meeting this month. Some big shareholders have expressed frustration over the board's decision last year to raise £7bn of expensive funds from Middle Eastern investors.

Source: FT

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