Financial thoughts

British bank Barclays confirmed on Friday that it had agreed to sell its BGI investment arm to U.S. firm BlackRock for $13.5 billion, creating the world’s biggest asset manager.

Barclays (BCS) said in a statement that a net gain of $8.8 billion would be used to bolster its capital strength, boosting its core Tier 1 capital adequacy ratio by 1.5 percentage points.

The cash and shares deal for Barclays Global Investors (BGI), unveiled in the United States late on Thursday, will see Barclays take a 19.9% stake and two seats on the board of the enlarged group, to be called BlackRock Global Investors.

Shares in Barclays were trading down 1.5% by 0725 GMT on Friday, having risen earlier this week ahead of confirmation of the widely-anticipated deal.

BlackRock (BLK, Fortune 500) is paying $6.6 billion in cash and the rest in stock and said it is raising $2.8 billion from the sale of 19.9 million shares to a group of unnamed institutional investors.

Shares in BlackRock last traded up 2.3% in New York on Thursday at $182.60.

For Barclays the deal will strengthen its balance sheet after the bank refused aid from the British government that some of its rivals accepted as the global financial crisis engulfed the industry cheapest car insurance.

Including the impact from the conversion of mandatory convertible notes issued in November 2008, Barclays said its core Tier 1 ratio would have been 8% at the end of 2008.

Barclays also said its trading performance up to the end of May had been "generally consistent" with trends reported at the time of its interim statement on May 7.

Barclays has agreed not to sell any of its BlackRock shares in the first year without the asset manager’s consent, and no more than half its holding in the second year.

The bank’s Chief Executive John Varley and President Bob Diamond will each get a seat on BlackRock’s board.

Diamond will receive a net consideration of $36 million before any deductions from shares he holds in BGI. He will have paid $10 million to acquire the shares since 2003, Barclays said.

Other BGI staff are in line for a windfall from a lucrative employee share ownership plan. If they exercise options staff will own 9% of BGI.  

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