Barclays Plc (BARC), the U.K.’s second- largest bank by assets, will sell its entire $6.1 billion stake in BlackRock Inc. (BLK:US) before the latest round of Basel rules stops it from counting the holding as capital.
BlackRock, the fund manager started by former mortgage-bond trader Laurence Fink, will buy back as much as $1 billion of shares from Barclays as part of the transaction, the London- based bank said in a statement today. The British bank took the 19.6 percent holding when it sold Barclays Global Investors to BlackRock in December 2009 for about $15.2 billion.
The latest rules from the Basel Committee on Banking Supervision will force the lender to set aside capital against the stake to cushion itself against any decline in the value of the holding. BlackRock has slipped about 24 percent since the purchase was completed, prompting Barclays to write down the value of its stake in 2011 to about 3.4 billion pounds ($5.3 billion).
“It’s a less attractive asset under the Basel III rules,” said Ian Gordon, an analyst at Investec in London who rates the bank a buy. “Barclays can remove it from that debate.”
Barclays, Morgan Stanley (MS:US) and Bank of America (BAC:US) Corp. are overseeing the sale of about 29 million shares to money managers, including the over-allotment option. They expect to set a price for the stock on May 23, according to a term sheet for the offering.
BlackRock fell 2.4 percent to $167.73 in New York. The stock closed at $147.72 on May 22, 2009, when BlackRock made the non-binding offer for BGI, before rising 54 percent to $227.08 the day before the purchase was completed that year. Barclays increased 2.2 percent to 180 pence in London trading today.
A further statement will be issued following the pricing of the offering, Barclays said. A spokesman for the lender in London declined to comment beyond today’s statement.
“BlackRock taking $1 billion of this gives Barclays a good anchor investor to start this,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA. “What this does for Barclays is get rid of a lot of volatility in this holding.”
Regulators are forcing banks to assign higher risk weightings to shares in financial companies to ensure they are adequately capitalized individually and discourage them from owning one another. By boosting those weightings, regulators can force banks to set aside more capital, reducing profitability.
Barclays Chief Executive Officer Robert Diamond is selling assets and focusing on the lender’s most profitable operations to help him meet his 13 percent target for return on equity, a measure of profitability. He sold the bank’s consumer and commercial bank operations in Russia in October and a private equity unit in November. Diamond will step down from BlackRock’s board following the sale, the fund manager said today.
Biggest Asset Manager
BlackRock paid Barclays 37.6 million common and preferred shares and $6.65 billion in cash to acquire the unit in 2009. BlackRock’s shares surged from the time it announced the transaction in June 2009 until the purchase was completed in December that same year, as the deal made the firm into the world’s biggest asset manager and added passive products such as the iShares exchange-traded funds to its offerings.
“BlackRock’s relationship with Barclays has always been strong and will remain so,” Brian Beades, a spokesman for BlackRock, said in an e-mailed statement today. “Our plan to repurchase shares demonstrates BlackRock’s commitment to effectively executing our capital management strategy and returning cash to shareholders through buybacks and dividends.”
BlackRock said last May it had agreed to buy back Bank of America Corp. (BAC:US)’s remaining stake of 13.6 million shares for $2.5 billion. The bank acquired its stake in the New York-based money manager through the purchase of Merrill Lynch & Co. in 2009.
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