Shares in Barclays PLC fell in London Friday following the announcement that it had sold its Global Investment unit to U.S. fund manager BlackRock Inc. for $13.5-billion (U.S.).
Analysts said the deal announced Thursday was a necessity for Barclays, but the market still seemed worried about the bank's long-term prospects.
"We regard the BGI disposal as a long-signaled necessity, in order to boost Barclays' core tier 1 ratios to within spitting distance of its peers," said Sandy Chen, banking analyst at Panmure Gordon & Co.
"But our longer-term concerns about earnings sustainability and balance sheet risks remain," said Chen, who put a "sell" rating on the shares.
Barclays shares were down 3.5 per cent at 294 pence in afternoon trading on the London Stock Exchange.
Barclays Global Investors is the world's largest asset manager with more than 3,000 institutional clients and approximately $1.5-trillion of assets under management as of Dec. 31.
New York-based BlackRock, which will pay $6.6-billion in cash plus 37.8 million shares currently worth about $6.9-billion, said the takeover will create a firm with combined assets under management of more than $2.7-trillion.
Barclays will retain a 19.9 per cent stake in the new BlackRock Global Investors, representing a 4.9 per cent voting interest.
Blake Grossman, CEO of Barclays Global Investors, will serve as a vice chairman of the combined firm, head of scientific investing, and a member of the Office of the Chairman. Barclays Chief Executive John Varley and President Bob Diamond will join BlackRock's board.
Barclays turned to Middle Eastern investors to shore up its capital position rather than take on the British government as a major shareholder, as Royal Bank of Scotland and Lloyds Banking Group have done.
Thursday's deal will boost the bank's tier 1 capital ratio, a key measure of a bank's ability to pay debts of all types, to 8.0 per cent.
If completed, the BlackRock deal will nullify Barclays' earlier agreement to sell BGI's highly profitable iShares unit for $4.4-million to CVC Capital Partners. CVC has until June 18 to trump BlackRock's offer; if not, Barclays must pay CVC $175-million for breaking their deal.
Barclays shares have enjoyed a spectacular rebound from a low point of 51.2 pence on Jan. 23.
The market favours banks with higher capital ratios, but Barclays paid a price for that advantage, said Nic Clarke, analyst at Charles Stanley & Co.
"Over the years we have highlighted that BGI is one of the growth drivers of the business and does offer valuable earnings diversification. Therefore, BGI is something that is hard to replace," Clarke said. He kept Barclays share rating at "hold."