Protium: Picking a solution out of thin air

THE toxic assets that make up Barclays’ so-called Protium portfolio are aptly-named. Protium is the most common isotope of hydrogen gas, and the bank was plucking a solution out of thin air when it used a barely-disguised accounting trick to push $9.8bn of toxic assets off its balance sheet. Little wonder the manoeuvre has failed: now the bank is paying an £83m “management fee” to get the assets back from C12, the asset manager set up by a bunch of Barclays traders to manage the loans. The bank plans to sell the assets over the next three years, likely at a discount to what they will eventually be worth, so it doesn’t have to hold capital against them.

Shareholders have had enough of the hocus-pocus typified by the Protium deal – it reeks of the kind of exotic finance that was one of the reasons for the credit crunch (remember the CDO squared anyone?). But the solution to the Protium mess is hardly an exercise in simplicity. Although the assets will return to the Barclays balance sheet, they will continue to be managed by C12. Coincidentally, or so we’re told, Barclays is making a $750m investment in Helix, a separate fund managed by C12. Make sense? We didn’t think so.

In truth, the long-term effect on Barclays’ performance will be negligible; save for the £83m “management fee”, there will be little material impact. The cost to its reputation, however, will be much greater.

This debacle comes at a tough time for the bank, with first-quarter pre-tax profit down nine per cent year-on-year to £1.66bn and underlying pre-tax profit at BarCap, the investment bank, slipping 15 per cent. Management needs to focus on boosting performance – and leave creative accounting tricks in the past.