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BlackRock purchases BGI for US$13.5b

BLACKROCK has agreed to buy Barclays Global Investors to create the world's biggest asset manager, in a US$13.5-billion deal that British bank Barclays hopes will put to rest concerns about its capital.

The cash and shares deal, unveiled in the United States late on Thursday, will see Barclays take a 19.9-percent stake and two seats on the board of the enlarged group, to be called BlackRock Global Investors.

Britain's second-biggest bank yesterday said a net gain of US$8.8 billion would be used to bolster its capital strength, lifting its core Tier 1 capital adequacy ratio by 1.5 percentage points to about 8 percent.

"This (BGI) was always a core part of the business until recently but the reality is they need as much capital as possible for the core banking and investment banking business, and they've been able to get a very good price for the asset," said Colin Morton at Rensburg Fund Management, which owns Barclays shares.

BlackRock is paying US$6.6 billion in cash and the rest in stock. To help fund the cash payment it is raising US$2.8 billion from the sale of 19.9 million shares to a group of unnamed institutional investors, which people familiar with the matter had expected to include Middle East sovereign wealth funds.

San Francisco-based BGI's US$1.5 trillion in funds will give BlackRock US$2.8 trillion in assets under management, catapulting it to a dominant industry position with twice the assets of nearest rival State Street.

The sale strengthens Barclays' balance sheet after the bank refused aid from the British government that some of its rivals accepted as the global financial crisis engulfed the industry.

CEO John Varley said it will make Barclays one of the best capitalized banks in the world and he had "no worries" about its capital position.

Greater regulatory pressure to keep asset management and investment banking businesses separate and client preferences for independent fund managers also meant other banks were likely to split off fund arms, and the industry would consolidate.

"There are a number of pieces of empirical evidence saying this is the way the industry is trending, that's partly a consequence of client preference and partly a consequence of regulation," Varley said. "It's amplified in our case by the fact that the Lehman deal has changed the scale of Barclays Capital."

Barclays has agreed not to sell any of its BlackRock shares in the first year without the asset manager's consent.


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