Barclays races to seal iShares deal ahead of APS deadline

Shares surge on deal hopes and upbeat statement

Barclays is racing to announce the sale of its iShares business as early as next week to strengthen its position before a deadline to apply for the Government's asset protection scheme (APS). The bank's shares jumped by 23 per cent yesterday after it said it was in talks with "a number of potentially interested parties" about selling the exchange-traded funds arm of Barclays Global Investors (BGI).

The bank also said it was talking to the Treasury and the FSA about taking part in the APS. The Treasury has set a deadline for the end of March for applications to take part in the scheme, in which the state insures banks' assets against future losses for a fee.

Barclays is said to be considering a sale of iShares if a buyer will pay considerably more than the value implied for iShares by the bank's share price. The bank's total market value has shrunk to just £7.6bn.

Barclays' management has said consistently that it has enough capital to run its business, but the bank knows that wary investors increasingly value banks on their core capital strength.

The bank insists that it might not take part in the APS if the terms are not commercially attractive. But with the whole board up for re-election at next month's annual meeting and pressure growing on Marcus Agius, the chairman, Barclays will have to set out clear reasons for taking part in the APS or not.

A sale could help Barclays pay the Government's insurance fee in cash, avoiding the state capital injection Mr Agius has so far resisted. If Barclays chose to shun the APS, then the new capital raised in the sale would help calm investors worried about the bank's ability to ride out the recession.

RBS and Lloyds Banking Group have already agreed to take part in the APS, with both banks paying fees in B shares that have given the Government controlling stakes.

Mr Agius and John Varley, Barclays' chief executive, have staked their reputations on resisting state capital to keep control of their business.

But Barclays' 6.7 per cent core tier one capital ratio now looks thin compared with its state-capitalised rivals.

Banking analysts were sceptical about the price tag of up to £5bn reported for iShares. Alex Potter, analyst at Collins Stewart, said he thought Barclays would be lucky to get £2bn for the business in the current climate.

BGI's £595m of profit for 2008 is only about 10 per cent of the group total and analysts calculate that it only represents about a fifth of BGI's assets but probably more of its profit.

Talks are not said to concern a sale of any other part of BGI, the massive fund manager based in San Francisco.

Sandy Chen, an analyst at Panmure Gordon, said: "Contemplating the sale of one of the strongest, most capital-efficient parts of the group seems risky, especially given the focus on Barclays' relatively weak capital ratios."

Barclays also cheered investors by saying it had made "a strong start" to the year, echoing positive statements from US rivals such as Citi, JPMorgan and Bank of America.

Investment banking stocks in the US and Europe have risen in recent months, but Barclays has continued to fall. Investors are worried that Barclays Capital, the investment bank, could suffer big losses because it has not taken writedowns as big as Royal Bank of Scotland and other rivals.

iShares is said to be a distinct business within BGI with its own management, making it possible to sell it without major disruption. Barclays is likely to have to make payments to the iShares workforce because BGI staff owned 5.9 per cent of the business when the bank last reported figures a year ago.

Barclays' shares closed at 90.9p, still 41 per cent down this year.