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Barclays will dump 7.5bn in risky assets

BARCLAYS yesterday announced the sale of $12.3bn (&pound;7.5bn) of credit market assets to a newly-established fund called Protium Finance, managed by former Barclays Capital (BarCap) employees, in a bid to reduce its credit market exposure. <br /><br />The deal, a complex piece of financial engineering, was well received by investors but slammed by some analysts and media commentators.<br /><br />The bank, led by John Varley, said the Cayman Islands-based fund had been launched to buy credit assets and manage them over time. The deal will be funded by a 10-year loan of $12.6bn from Barclays to Protium, coupled with $450m of funding provided by the partners of Protium, two unnamed hedge funds. These will receive interest of seven per cent for ten years and any surplus remaining if Barclays&rsquo; loan is repaid in full.<br /><br />Protium will be managed by C12 Capital Management, run by former BarCap employees Stephen King and Michael Keely. Another 45 bankers will leave to join C12, which will be paid management fees of $40m a year for a decade by Protium. The staff will escape any curbs on bonuses imposed on large banks.<br /><br />The assets will remain on Barclays&rsquo; balance sheet for regulatory purposes. There will be no impact on the bank&rsquo;s capital requirements. Barclays will no longer be able to benefit if they recover in value; these gains would now all accrue to Protium. <br /><br />In return, Barclays&rsquo; exposure will be shifted from the assets themselves, which need to be adjusted according to highly volatile mark-to-market pricing, to the $12.6bn loan, whose value will be much more stable. <br /><br />The bank will earn interest at 2.75 per cent above the US inter-bank rate, a cumulative $3.9bn over 10 years. <br /><br />The sale consists of $8.2bn worth of assets wrapped with monoline guarantees, $2.3bn worth of asset backed securities, and $1.8bn worth of residential mortgage assets.<br />