Seeking Alpha
Research analyst, long/short equity, tech
Profile| Send Message| ()  

Barclays (NYSE:BCS) has been focusing on achieving greater depth in its businesses ever since it took a beating during the economic downturn. To ensure stable and sustainable sources of revenue in the years to come, the banking giant is going beyond the U.K. retail and commercial banking industries and expanding its operations to emerging markets such as India, China and the Middle East. In-line with this initiative, Barclays has been looking to exit its private equity arm Barclays Private Equity (BPE) for quite some time now. The spin-off may well be around the corner, [1] as the firm looks to focus on its investment banking business instead. The London-based global bank competes with other worldwide banking institutions and financial services group like Citigroup (NYSE:C), The Royal Bank of Scotland Group (NYSE:RBS), Bank of America (NYSE:BAC), UBS (NYSE:UBS) and JPMorgan Chase (NYSE:JPM).

We maintain an $18.30 price estimate for Barclays stock, in line with market price.

About Barclays Private Equity

A wholly-owned subsidiary of the Barclays Group, BPE’s performance is reported by the company as a part of Barclays Capital. The last offering of BPE was the Barclays Private Equity European Fund III (BPEEF III) which pooled in €2.445 billion for investments in the UK. The fund invests between €15 million and €150 million in enterprises worth less than €500 million. [2]

BPE is waiting for the “first close” of its latest round of fundraising, which is expected in about a month, after which it could be separated.

What the spin-off would mean to Barclays

The most direct impact of the spin-off on Barclays’ value would be due to a reduction in the value of assets under management.

(Chart created by using Trefis' app)

The €2.445 billion assets held by this division represents a reduction of about $3.4 billion in assets once the spin-off is completed. Notably, this change has little impact on our $18.30 price estimate for Barclays stock.

Notes:

  1. Barclays PE split ‘imminent’, The Independent, May 15 2011
  2. About BPE, Barclays Private Equity, 2011

Disclosure: No positions

Source: Barclays Looks Likely to Spin Off Private Equity Arm Soon