Barclays Said Close to Rejecting Asset Insurance After FSA Test

Barclays Said Close to Rejecting Asset Insurance After FSA Test


March 29 (Bloomberg) -- Barclays Plc, the U.K.’s third- biggest bank, plans to reject government asset insurance after financial regulators said the lender didn’t need additional capital, said a person familiar with the situation.

London-based Barclays will inform the Treasury of its decision by the March 31 deadline, said the person, who declined to be identified because the discussions are confidential. The bank’s board hasn’t made a final decision, the person said.

Barclays would be “right to reject the insurance program because it is expensive,’’ said Simon Maughan, an analyst at MF Global Securities Ltd. in London. Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc are paying a “high price’’ to take part in the plan, he added.

The Financial Services Authority has reviewed Barclays’s assets and found that it has sufficient resources even if the global financial crisis worsens, the bank said March 27. In addition, Barclays is in talks to sell its iShares unit to bolster financial strength. RBS and Lloyds slipped into government control after taking taxpayer funds.

Barclays spokesman Alistair Smith declined to comment. When asked whether Barclays would participate in the asset insurance program, a Treasury spokesman said only that the agency will consider applications from eligible institutions until March 31.

Barclays jumped 24 percent to 173.8 pence on March 27, its biggest gain in two months, after the results of the FSA review were announced. The bank is the only U.K.-based lender whose shares have risen this year.

Insurance Fees

Lloyds paid 15.6 billion pounds for government guarantees on 260 billion pounds of risky investments, or 5.2 percent of the assets. RBS paid 6.5 billion pounds, or 2 percent, to protect 325 billion pounds of assets. Both banks used preference shares paying 7 percent interest to cover the fee.

That will allow the government to increase its stakes in the two banks to as much as 75 percent.

Barclays has resisted giving a stake to the government, turning to a group of Middle Eastern investors for more than 5 billion pounds rather than accept a bailout.

Still, the bank’s Tier 1 capital ratio, a measure of financial strength, is 6.7 percent, lagging behind Lloyds and RBS. Lloyds estimates its core capital ratio will jump to 14.5 percent as a result of the asset-protection program, and RBS says its ratio will rise to 12.4 percent.

Barclays is seeking as much as $7 billion for iShares, part of San Francisco-based Barclays Global Investors. IShares, which had 226 billion pounds under management at the end of last year, is the largest manager of exchange-traded mutual funds, whose shares can be bought and sold like stocks.

IShares Bidders

The leading bidders are a joint effort by Colony Capital LLC and Bain Capital LLC, two U.S. private equity firms; New York-based Goldman Sachs Group Inc.; and a group of leveraged buyout firms that includes Hellman & Friedman LLC of San Francisco and London-based Apax Partners Worldwide LLP, according to people familiar with the discussions.

“They would not have even been thinking about selling it a year ago,’’ said Dave Bradbury, who helps manage $6 billion at Canada Life Ltd. in London. “Anything to avoid the government shilling.’’

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