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| A Barclays Bank logo is seen on the outside of a branch, in central London in this October 31, 2008 file photograph. | ||
However, as Abu Dhabi's International Petroleum Investment Company (IPIC) sold part of its Barclays stake this week, the bank avoided being bailed out, and partly owned by the British government, while Abu Dhabi and other Barclays shareholders benefited from the recent rally in the stock market.
Chaired by Sheik Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi's royal family, IPIC sold 1.3 billion shares of Barclays on Monday, which leaves IPIC with 5 percent of the bank's stock.
According to Credit Suisse which executed the sale, the shares were sold at 265 pence each, making an enviable profit of 1.46 billion pounds in just seven months.
Back in January, IPIC might have worried when Barclays shares touched 51pence on fears it would be nationalized by the British government. But now its bet looks well-timed.
Singapore's investment firm Temasek, which had invested more than 1 billion pounds in Barclays since July 2007, reportedly sold its entire 2 percent stake between December and January, losing an estimated 800 million pounds.
With many sovereign wealth funds registering losses on their bank stakes, Abu Dhabi can feel pleased with their short-term gains. However, Abu Dhabi may simply have been at the right place at the right time.
"Remember, each time a sovereign fund invested in the financial market over the past 20 months, the entry price was always said to be at distressed levels," Steffen Kern, director for international financial market policy at Deutsche Bank, said. "Sooner or later, someone was bound to catch the rally."
Some have argued that the short-term nature of Abu Dhabi's Barclays stake was too speculative and out of character for sovereign wealth funds. But Jan Randolph, head of the sovereign risk group at Global Insight, does not agree.
"They can easily invest in hedge funds and private equity groups to speculate," he said. "Sovereign funds can also face scrutiny at home if it makes poor investments."
Judgement on Barclays is more complicated. The bank faced a rebellion from almost a quarter of its shareholders when it asked them to endorse the plan to accept capital from the Middle East in November 2008. Even those that voted in favour were unhappy that Barclays ignored pre-emption rights, which are the rights of existing shareholders to be offered newly issued shares in preference to non-shareholders.
"Barclays' management certainly damaged their reputation with the abuse of pre-emption rights," Alex Potter, a banking analyst at Collins Stewart, said. "But the shares' subsequent performance probably made that something of a non-issue for most shareholders."
Another criticism was about Barclays' slower reaction to the credit crunch than its peers, and as a result the bank paid a higher price.
In October 2008, Barclays secured a capital injection that was largely backed by oil-rich investors from Abu Dhabi and Qatar, as it sought to avoid taking British government funds in a bid to survive the credit crunch.
For Barclays, the deal-breaker was its insistence that independence from government ownership was necessary to avoid interference on issues such as staff compensation. That did not convince everyone, and it remains difficult to attribute gains directly to the "self-determination" path.
Even so, Barclays shares doubled in price in the first six months of the year while those of RBS and Lloyds Banking Group, who agreed to be bailed out by the British government, fell 19 percent and 41 percent respectively.
Barclays also avoided the public outcry over bankers' pay, which engulfed RBS earlier this year. And with competitors hamstrung in Britain and abroad, Barclays had a good hiring environment.
erry del Missier, president of Barclays' investment banking arm Barclays Capital, said in May that there will be more than 750new jobs this year as the bank challenges for global leadership inequities and mergers and acquisitions (M&A) advisory.
Considering Barclays quit both M&A advisory and equities in 1997, its current strategy represents a step back to the universal service banking model, which some have blamed for making financial institutions such as Citigroup too complex to manage, and too big to fail without causing systemic damage to the financial system.
However, it is too early to say what Barclays' eventual corporate shape will be, as it is pushing ahead with the disposal of Barclays Global Investors, a subsidiary of Barclays Group, which could raise more than 6 billion pounds and would further dispel fears of a government bailout.
Given its stretched finances, perhaps even the British government is relieved that Barclays had someone else to help them.
(XFN)
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