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Wednesday, 1 April 2009

Why stop there

Barclays has entered exclusive negotiations with CVC Capital Partners for the sale for about £3 billion of the exchange traded funds business of iShares subsidiary.. The deal excludes iShares securities lending arm, and will raise less than the estimated full value of £6 billion of iShares, but the sales proceeds will add £3 billion to Barclays Tier 1 capital.

But here is the cute part: the deal would be 60-70% financed by a loan from Barclays, which will also receive warrants worth 20% of the equity in the buy-out. So Barclays only reduces its exposure to the business by £1 billion, but increases its capita by £3 billion less X% of £2 billion (where X is a number picked by the FSA from time to time).

But hey Mr Varley, why stop there? Call me with a loan offer for 100% funding and I will buy the business for £6 billion. I will even give you warrants worth 90% of the equity. You keep nearly all the upside and you get twice as much regulatory capital increase. Surely that is an offer your shareholders can't refuse, no?

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