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Barclays moves to offload £7bn risky products
16.09.09
Barclays today shifted $12.3 billion (£7.4 billion) of its riskier investments to a new fund set up by two former Barclays Capital executives.
The bank will back the new business, called Protium, with a $12.6 billion loan. The deal does not remove the risk of the investments - which are almost entirely in monoline insurance written against some of the riskier sub-prime assets in the US - from the bank's balance sheet. But it does mean it will not have to adjust their values every six months on the so-called mark-to-market basis which highlights the volatility of such investments.
Barclays finance director Chris Lucas said the move would "secure more stable risk-adjusted returns for shareholders over time".
Protium has been set up by asset manager C12, headed by Stephen King, ex-boss of BarCap's principal mortgage trading group, and Michael Keely, also a former BarCap financier.
The deal came as Barclays dismissed as "opportunistic" a claim by Lehman Brothers that it took $8.2 billion more than it should when it bought key assets of the failed bank a year ago.
Reader views (3)
Barclays is merely postponing the enevitable i.e. writing off the entire amount, but are passing a further £240 million of remuneration to the team of traders responsible for investing in these toxic assets in the first place.
- Adam, London
Why not pay all banker's bonuses and large salarys with toxic assets. They could hardly say no as they caused them. Justice!
- Frederick, London
Will it remove the risk? The recoverability of this loan is linked to the ability of these assets to be recovered in the fund. If that isn't happening and evidence of defaults, then Barclays will have to take an impairment hit on their big loan to the fund. This was the big question mark with Barclays, ie why so little write-downs on all the securitisation assets it was holding in the pre cdo warehouses. The same reduction in reporting volatility could have been achieved by moving them to the loans and receivables category which international accounting standards now allows you to do.
- David Stephens, London
