Abu Dhabi bags big Barclays profit as Q3 fears grow

Abu Dhabi bags big Barclays profit as Q3 fears grow

Abu Dhabi committed to pump up to $7.6 billion into Barclays two years ago.

October 8, 2010 1:41 by Reuters

The main Middle East investor who pumped billions of pounds into Barclays Plc effectively sold a chunk more shares, giving him a profit of over $3 billion on the deal and sending the British bank’s shares lower.

The sale came as concern mounted that income at Barclays Capital (BarCap), the investment bank arm, will fall short of expectations for the third quarter and possibly next year.

A vehicle of Abu Dhabi’s Sheikh Mansour, owner of English soccer team Manchester City, exercised 131.6 million warrants in Barclays, equivalent to a 1.1 percent stake, and simultaneously entered into a hedging arrangement with Nomura, it said in a statement after Thursday’s UK stock market close. Nomura sold 220 million shares in Barclays as part of the hedging transaction, to effectively lock in a 140 million pounds ($223 million) profit on the warrants. The shares were sold before Friday’s opening at near 295 pence per share, a person familiar with the matter said.

At 1040 GMT Barclays shares were down 2.5 percent at 296.25 pence, one of the weakest UK blue-chip stocks at the time. The stock fell as low as 292.85p, its lowest since late August.

“Abu Dhabi still have upside exposure in the stock, but they’re taking some money off the table,” said Manoj Ladwa, senior trader at ETX Capital.

Shares were also hurt by an expectation that investment banks will suffer a drop in income of at least 10 to 20 percent in the third quarter from the second quarter, after a slow July and August.

“Sentiment is poor, Q3 investment bank earnings will be weak and, realistically, the best possible outcome for Barclays Capital is modest outperformance,” said Ian Gordon, analyst at Exane BNP Paribas.

BarCap’s revenue could dip to less than 3 billion pounds in the third quarter from 3.3 billion in the previous three months. Credit Suisse analysts said there was a risk that expectations for 2011 were also “materially too high”.

ABU DHABI PROFIT

Abu Dhabi’s warrants, which allow a holder to buy a stock at a specific price during a specified period, were exercised at 197.75 pence per share.

Abu Dhabi, through a vehicle of Sheikh Mansour bin Zayed al-Hahyan and the royal family, pumped over 6 billion pounds into Barclays under a controversial fundraising agreed two years ago that allowed the bank to avoid taking taxpayer funds at the height of the financial crisis.

But the deal was criticised by existing shareholders for being too generous to the new investors.

Abu Dhabi, which owns the stake though investment vehicle PCP3, has already pocketed or is sitting on a profit of over 2.2 billion pounds ($3.5 billion) on its Barclays bet.

The latest deal means PCP3 holds a 6.3 percent stake — albeit with much of it hedged — after it exercised 627 million warrants earlier this year. It also sold instruments equivalent to an 11 percent stake in June 2009.

Barclays also raised funds from Qatar, China, Japan and Singapore investors in 2008.

Qatar still holds 379.2 million warrants that can be exchanged into shares under the same terms as Abu Dhabi. The warrants are exercisable until 2013.

(Additional reporting by Tricia Wright; Editing by Mike Nesbit and David Holmes)