LONDON — Barclays PLC (BCS) said Monday that it intends to sell its $6.1 billion stake in BlackRock Inc. (BLK), as the U.K. lender seeks to redeploy cash to boost its profitability and offset the effects of impending regulation.
Barclays said that BlackRock agreed to repurchase $1 billion worth of the 19.6% stake the bank holds in the asset-management company. The remainder of the stake will be listed on a stock exchange. The pricing of the stock listing is expected to be completed this week, people familiar with the matter said.
The U.K lender is the latest in a long queue of European banks looking to shed their asset-management divisions. New regulatory rules will likely force banks to hold more capital against these businesses, making them less attractive, analysts say. The Netherlands' Rabobank, Deutsche Bank AG (DB) and Dexia SA (DEXB.BT) are all hoping to raise capital with sales.
At Barclays, management also faces pressure from investors to boost the bank's return on equity. During its full-year results, Barclays said adjusted return on equity, a closely watched metric among investors and analysts, fell to 6.6% from 6.8% a year earlier, well below the bank's 2013 target of 13%.
Chief Executive Bob Diamond said the bank's 2011 return on equity was "unacceptable" and warned that the 13% target might not be achieved by 2013. Pressure to hit this target was further ratcheted up when several investors said Barclays' executives were overpaid relative to the bank's financial performance. Diamond has since said he would link a part of his long-term bonus to return on equity targets.
Some analyst welcomed the news of the sale. "The BlackRock stake had little fit with the rest of the Barclays franchise and offered little in terms of profitability," analysts at Citi wrote in a note. "We see no logic in retaining the stake and therefore think this decision is the correct one."
The sale will help Barclays mitigate the effects of Basel III rules, which could force banks to hold more capital against minority stakes in asset management businesses, said Mike Trippitt at Oriel Financials. The bank could also redeploy the cash to boost its businesses, notably in Africa, which has been a strong growth driver for the bank. Other options include putting money into its wealth management division and investment banking arm, analysts said.
However, others noted that the bank is already flush with cash it could use to boost the performance of its businesses. "Sitting here, Barclays was not short of capital and so could easily have invested in parts of their business," said Ian Gordon at Investec. A spokesman for Barclays declined to comment on how the proceeds of the sale would be used.
Barclays' holding in BlackRock dates from the bank's sale of Barclays Global Investors to the asset management company in June 2009. On several occasions, Barclays has had to write down the value of its stake in BlackRock as the company was hit by difficult market conditions. In September 2011, Barclays investment in BlackRock was written down by GBP1.8 billion to a fair value of GBP3.4 billion or $5.4 billion at current exchange rates.
Once the sale is completed Diamond will give up go his seat on BlackRock's board. A spokesman for BlackRock said its relationship with Barclays "has always been strong and will remain so."
Barclays shares closed up 2.2% at 180 pence. BlackRock shares at 1600 GMT were down 0.4% at $171.20.
