UPDATE: Barclays Sells $12.3 Billion Credit Assets To Former Executives
September 16 2009 - 11:59AM
Dow Jones News
Barclays PLC (BCS) Wednesday sought to cut its exposure to
volatile credit markets by selling $12.3 billion in risky assets to
a new fund managed by two former Barclays executives.
The sale means Barclays will no longer have to record market
moves in the value of a portfolio of securities backed by U.S.
subprime mortgages and other poorly performing loans that already
wiped more than a billion pounds off its profits in 2008. But it
won't free up any capital because Barclays is extending the new
owner, Protium Finance LP, a $12.6 billion loan to finance the
sale, and will keep the securities on its balance sheet for
regulatory purposes.
Loan interest payments to Barclays will come from the
securities' cash flows, and the loan will be secured on the
assets.
In exchange for what the bank hopes will be a less-volatile
investment, Barclays is giving up any potential upside from
securities that in many cases are still making interest payments,
suggesting that it expects those payments to tail off over time and
that capital wouldn't be fully repaid when the securities
mature.
Group Finance Director Chris Lucas said Barclays has been
collecting $100 million to $120 million each month in interest
payments on the portfolio, but the interest rate on the loan will
bring in annual returns of less than $400 million.
"We are not seeking through the transaction to effect a change
to our underlying credit-risk profile. But we are restructuring a
significant tranche of credit-market exposures in a way that we
expect will secure more stable risk-adjusted returns for
shareholders over time," Lucas said.
Helping establish Protium Finance - whose manager, C12 Capital
Management, is employing 45 former Barclays Capital staff - might
also help revive asset-backed securities markets if other banks
turn to it or similar vehicles to unload these kinds of
investments.
Uncertainty about future losses on the securities has plagued
banks since the credit crisis started two years ago.
Protium Finance's manager, C12 Capital Management, was founded
by Stephen King, the former head of Barclays Capital's principal
mortgage trading group; and Michael Keeley, a member of the
investment banking unit's management committee covering European
financial institutions.
The Cayman-based Protium fund has received a further $450
million in funding from two institutions, Barclays said. It
declined to say who they were, but Lucas said one was based in the
U.S. and the other in the U.K.
Barclays isn't investing in the fund or C12 Capital
Management.
The $12.6 billion Protium loan matures in 10 years and is
secured on the credit assets. Interest payments will be drawn from
income generated by the fund's assets after the managers collect
annual management fees of $40 million, plus expenses.
The interest rate is fixed at Libor plus 2.75%, which Barclays
said should result in about $3.9 billion in total interest
payments.
Shares in Barclays at 1513 GMT were up 10 pence, or 2.7%, at 379
pence.
Company Web site: http://www.barclays.com
-By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451;
margot.patrick@dowjones.com