Barclays launches certificates to attack pounds 4bn property exposure

BARCLAYS Bank is to reduce its pounds 4bn exposure to UK property companies by selling pounds 150m of interest-paying certificates whose redemption value will track the value of the property market.

The Property Index Certificates will be privately placed with institutional investors, mainly pension funds, by BZW Investment Management. The value of the PICs will move in line with the existing Investment Property Databank Annual Index.

James Woodlock, managing director of BZW Investment Management, said that if property values rose, investors would gain while the bank's loss would be offset by write-backs of its provisions against doubtful property loans. If values fell, the bank would have less to pay back on maturity.

The initiative is designed to reduce the property element of Barclays' pounds 70bn UK loan portfolio while allowing it to continue lending to property companies.

Alan Brown, director of group credit policy, said property lending at the end of the 1980s had been too high at over pounds 5bn, and that although Barclays' exposure was decreasing it still had some way to go.

The PICs will be in minimum tranches of pounds 250,000 at maturities of two, three, four and five years. Investors will be offered an annual income, and repayment of capital on maturity, linked to the returns on the index.

Unlike the recent securitisation of mortgages and centralised personal loans by Barclays, the new scheme does not shift lending off the balance sheet.

View from City Road, page 27