Barclays sells iShares for £3 billion

As per speculation, Barclays has this afternoon announced the sale of its iShares asset management business to CVC Capital Partners, a private equity house.

Barclays has been trying to sell iShares for some time, with other buyers such as Goldman Sachs reported to have been involved in negotiation.

The sale to CVC will give Barclays a net gain of $2.2 billion and will lift its capital strength ratio, a key measure of the bank’s financial strength.

Barclays has sought to remain independent and has rejected government help via its toxic assets insurance scheme – as already used by other banks, including Lloyds Banking Group.

The FSA recently gave Barclays balance sheet a clean bill of health. This sale of iShares further boosts its capital strength.

Barclays is part financing the deal with a loan to CVC. It is also retaining a 20% stake in the business.

Some 200 executives of Barclays Global Investors (BGI), the parent of iShares will participate in a multi-million payout as a result of the sale as they own 4.5% of BGI.

The market is reacting well to the deal with a 10%+ jump in Barclays share price this afternoon.

That said this really is a short term fix for Barclays and going forward questions of capital adequacy will no doubt be raised again. This may result in the need for Barclays to raise more capital.