Barclays sells BlackRock shares

Barclays has decided to sell its $6b stake in US fund manager BlackRock which has been held for nearly three years after the sale of Barclays Global Investors. The move comes as Barclays seeks to shore up its reserves and increase its capital returns.

Under new capital requirements many merchant banks are consolidating their assets or seeking further capital to satisfy the tougher rules imposed in the corporate banking sector. Under Basel III, the next round of reform in the banking sector fund managers score poorly in risk analysis models and most banks will resist investing. Government bonds and gilt edged securities are likely to become the investment of choice for banks in the future.

The capital injection arising from the sales will boost Barclay’s balance sheet and cash reserves. The shares would initially be offered to the public along with BlackRock buying back $1b of the stock. The actual value of the BlackRock stake was an estimated £3.4bn, allowing Barclays to come out of the sale with a small profit, depending on the final sale price.

Bob Diamond, Barclay’s CEO explains that the bank is committed to following a strategy of improved capital returns; the objective is to increase the return on capital to 13 percent. After last years return of 5.8 percent, Diamond admitted the objective was a challenging one and would be difficult to achieve by 2012 which was the goal.

A report on the BlackRock stake indicated the return on capital was unlikely to achieve the required return and was preventing the bank pursuing other opportunities. The conclusion was that the cash realised from the sale could be used in more profitable areas.

BlackRock shares fell slightly in New York after the announcement, trading at $169, a fall of 1 percent. Corporate advisers on the deal are Bank of America, Morgan Stanley and Barclays Capital.