Barclays
292p -12.5pON ANY measure, it is difficult to believe that Barclays might be selling the crown jewels in flogging its Barclays Global Investors fund management arm to BlackRock.
It is a very good business, but it
is not the bank's crown jewels.
The price, $13.5 billion (£8.2bn), is a pretty top-of-the-expected-range figure, while, by retaining a stake of nearly 20 per cent in the new BlackRock Global Investors, Barclays is keeping good exposure to a very profitable operation.
John Varley, Barclays' chief executive, made the point yesterday that the price being paid by BlackRock represents 28 per cent of the bank's current total stock market value.
That is comfortably above the 15 per cent of group pre-tax profits BGI chipped in to the bank last year.
Besides, Barclays' swoop on the US investment banking business of the collapsed Lehman Brothers last year has made it a very different animal.
Barclays Capital is much bigger as a result, with greater capital demands, and BGI would have eaten up some of the funds the investment banking activities will increasingly need.
In the wake of the global financial sector turmoil, there are also more pressures from both clients and regulators to keep asset management and investment banking separate.
So Barclays can rightfully say that, as well as further beefing up its capital ratios with the money it is receiving, it is also in line with current industry thinking.
BlackRock exemplifies the trend for separation. The fund management giant – now, with added BGI the biggest asset manager in the world by quite a distance, – was itself spun out of private equity giant Blackstone in the early 1990s.
It merged with Merrill Lynch Asset Management in 2006.
Barclays was already well-capitalised via its Middle Eastern fundraisings. But a net gain of $8.8bn on the BGI sale will push its capital adequacy ratio up 1.5 percentage points to about 8 per cent.
This makes it one of the best-capitalised banks around, and will not harm its relations with the Financial Services Authority.
While the Bank of England wants banks to lend to businesses and consumers and get the supine economy upright again, the FSA is still focused on banks being well-capitalised enough to meet the most difficult trading conditions.
Barclays has pulled off a deal which helps it meaningfully beef up its capital surplus, while allowing more management attention to be focused on its retail and investment banking businesses.
Tactically, the bank has also played the sale shrewdly. The previous more limited planned $4.4bn sale of the iShares exchange traded funds business – one part of BGI – looks to have been a sprat to catch a mackerel.
It alerted the market to the possibility that the whole of BGI might be in play, not just iShares, and BlackRock had the wherewithal and desire to do the deal.
SHADES of the last recession. The Bank of England says that more than one in ten households may have fallen into negative equity, where the value of properties is less than the outstanding mortgage.
We tend to think of negative equity as a phenomenon of the early and mid-1990s, when a recession and then economic stagnation did the damage, helped by interest rates that in 1992 peaked at 15 per cent on Britain's ignominious ejection from the European exchange rate mechanism.
Interest rates now at 0.5 per cent are far more helpful to battered homeowners, but that has not stopped between 700,000 and 1.1 million homes being in negative equity in the first quarter of 2009, according to BoE estimates.
The good news is that house prices appear to be stabilising, or at least falling at markedly lower rates than previously, so let's hope the negative equity estimates are just a resonance of the 1990s recession rather than a rerun of a dark time when millions of people were ensnared.
FURTHER to the above, the City decided late last year that more interest rate cuts were failing to kick-start the economy as rates were so low already.
That was when the game switched to how successful the Bank of England quantitative easing programme – printing money to buy assets – would be.
The jury, even the in-house one, is out. The BoE said yesterday that it was too soon to tell what impact the £125bn pump-priming is having.
Empirical evidence remains cloudy on whether companies are spending more and banks are lending more as a result. It will probably be late 2009 before anything remotely indicative of the success of the programme is clear.
Bryan Johnston of Brewin Dolphin
ONE TO WATCH
Carclo
88.5p No Change
Scotsman says HOLDCARCLO, a global supplier of technical plastic products to which Brewin Dolphin is broker, has two business segments. The technical plastics division supplies fine tolerance, injection-moulded plastic components for medical, telecom and electronics products. The precision products segment supplies systems to the automotive and aerospace industries.
Recent results from Carlco were as expected, £6.4 million before tax, reflecting a rise in operating profit of nearly 9 per cent.
The main growth engine in 2009 was precision products, where operating profits rose from £3.3m to £3.7m. In technical plastics, operating profits were static at £3.7m on reduced sales, reflecting the continuing transition towards higher margin, contract-backed businesses. The move away from low margin automotive businesses, concluded in October 2008, had a very positive effect.
Net debt is about £18m, partly because of the acquisition of Jacottet and also a reflection of the weakness in sterling, which boosted debt by nearly £4m. The pound's recovery will have helped as nearly three-quarters of the company debt is in non-sterling currencies. The company remains well inside its debt covenants.
On our forecasts, Carclo should achieve earnings per share of about 7.8p, which will leave a somewhat mean dividend more than twice covered. Although the shares pushed ahead over the first half of this year, Carclo is an example of the myriad of smaller companies which may be sound longer-term prospects.
• The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.
Global equities rise boosts Edinburgh Worldwide
SMALL BUT BEAUTIFULEDINBURGH Worldwide Investment Trust saw its net asset value per share rise in the first half of its financial year, as global equities bounced back strongly.
The trust, which invests in listed companies throughout the world with a view to capital growth, said its net asset value (NAV) per share at the end of April 2009 was 210.66p, up 22.5 per cent on the figure six months earlier, but down on the figure of 298.53p at the end of April 2008.
At the end of April this year, the trust had total net assets of £127 million – before the deduction of loans of £24m.
David Coltman, chairman of the company, said: "Events since the autumn of 2008 reinforce our view that both the scale of banking devastation and the knock-on effects to government financing will accelerate the underlying changes in global GDP distribution from western to eastern economies.
"We reflect this belief both in the shape of our portfolio and with net gearing of 20 per cent."
An interim dividend of 0.5p has been proposed by the trust, unchanged from last year.
The trust is managed by Edinburgh-based fund manager Baillie Gifford.
Bad day for oil firms as crude slides
SCOTS STOCKSOIL companies dropped again yesterday as crude prices eased, despite the International Energy Agency saying demand for the product had risen.
Dana Petroleum, which does not hedge any of its production, is always volatile, along with the crude price. Its shares dropped 2.5 per cent to 1,274p. Venture Production, the Aberdeen company being stalked by Centrica, dropped 10p to 785p, its lowest level in more than a month.
Cairn Energy, which is ready to produce the first oil from its major Indian fields as soon as it strikes a deal over price, eased 56p to 2,459p.
The FTSE 100 company says it is ready to go, but the delays in reaching an agreement could push it close to its target of achieving first oil by the end of the second quarter.
Oil services giant Wood Group has recovered strongly in recent weeks, and will be on the FTSE 100 reserve list when the quarterly reshuffle takes effect next week. But yesterday, shares slipped 4.5p to close at 295.5p.
Industrial-related companies dropped as commodity prices fell. Weir Group, which is heavily exposed to investment in mining, fell 14p, or 2.6 per cent, to 520.5p, while temporary power provider Aggreko closed down 20p at 559p.
On Aim, Angel Bioscience fell 8.3 per cent to 0.44p, despite announcing a new manufacturing deal with BioOutsource.
Edinburgh digital CCTV company IndigoVision eased 10p to 405p after announcing that chief technical officer Barry Keepence had sold 10,000 shares in the company this week.
Goals Soccer Centres, which holds an EGM on its £11 million share placement next week, climbed 1.5p to 202.5p.
The full article contains 1563 words and appears in The Scotsman newspaper.
