UPDATE 3-Barclays to sell $6.1 bln BlackRock stake

Mon May 21, 2012 12:16pm EDT

* Barclays to sell 19.6 pct stake via share offer

* Tougher Basel III rules make minority stakes less profitable

* Barclays to make about 400 mln stg on deal -analysts

* BlackRock shares dip 0.6 pct; Barclays up 1.5 pct

By Steve Slater

LONDON, May 21 (Reuters) - British bank Barclays is selling its near-20 percent stake in U.S. asset manager BlackRock, worth $6.1 billion, as tougher global regulations have cut the attraction of such holdings.

Barclays has held the stake for almost three years, a legacy of BlackRock's $15 billion purchase of Barclays Global Investors, but Basel III regulations mean banks have to hold more capital against minority stakes in asset managers and other firms, making it less profitable.

"All this is just showing how difficult it is for banks to make a profit and sufficient RoE (return on equity) in the new regulatory environment. They are deleveraging or pursuing transactions like this to improve capital ratios," said Richard Barfield, a director at PricewaterhouseCoopers.

Barclays said the shares would be sold by way of an offering and a related buyback by BlackRock of up to $1 billion of the stock. Bookbuilding was expected to take a couple of days before the price of the share sale is finalised, possibly on Wednesday, bankers said.

Barclays is set to make about 400 million pounds on the deal.

By 1510 GMT BlackRock shares were down 0.8 percent at $170.48. Barclays shares were up 2.1 percent at 179.9 pence in London, outperforming a 1 percent rise by the European bank sector index.

"The question was always would they sell ahead of Basel III fully coming in, so there's a logic to it," said Mike Trippitt, analyst at Oriel Securities in London.

Barclays holds BlackRock common stock and convertible stock representing a 19.6 percent economic interest in the firm, equivalent to about 35.2 million shares.

BlackRock bought BGI in a cash and share deal in June 2009, making it the world's largest money manager, almost doubling its size. It was seen as a good deal for Barclays, giving it a much-needed capital boost at a time when all banks were under strain.

The deal also left BlackRock as one of the biggest shareholders in Barclays, with a 7.1 percent stake. Barclays said the future of that holding was a matter for BlackRock, and BlackRock declined to comment on its holding.

Barclays Capital, Morgan Stanley and Bank of America Merrill Lynch are joint bookrunners for the offer. A prospectus was filed by BlackRock on Monday.

WRITEDOWN ON VALUE

New York-based BlackRock, founded more than 20 years ago as a one-room bond investment firm, grew to become the world's largest publicly traded asset manager through a series of acquisitions, led by Chairman and CEO Laurence Fink.

It bought BGI after sidestepping the toxic assets that laid low many competitors in the financial crisis, particularly attracted by its exchange-traded funds arm. It now has $3.7 trillion of assets under management.

Selling shares at current prices would see Barclays book a 400-500 million pound gain, worth about 10 basis points to its core capital, analysts at Espirito Santo estimated.

The original value of the BGI deal of $13.5 billion, including $6.6 billion in cash, was revised to $15.2 billion when it completed at the end of 2009 after BlackRock shares rallied to more than $220.

But last year Barclays marked down the value of the shares by 1.8 billion pounds to 3.4 billion pounds, or $5.5 billion, after the shares fell back to $148.

The decision to sell by Barclays Chief Executive Bob Diamond is part of his attempt to get RoE back above 13 percent, partly by selling or closing down areas or investments that do not measure up.

Other banks have sold asset management businesses in recent years or are trying to do so, including Rabobank selling its Robeco funds unit, and there are sales underway at Deutsche Bank and Dexia.

"From a regulatory capital perspective, we could see more banks selling parts of their business to improve available capital resources," PwC's Barfield said.

Diamond is a director at BlackRock, and Barclays will lose its right to a position on the board 90 days after completion. The original sale of BGI attracted criticism as it reaped a big windfall for Diamond and many other Barclays staff, thanks to a lucractive past incentive scheme.

Former Barclays CEO John Varley is an independent BlackRock director.

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