regulations

Another Bank to Shed off its Private Equity Arm

by

June 24, 2015

 

Ever since the financial crash in 2008, many banks have been restructuring their organisation. One big change in recent years has been banks’ willingness to shed off their private equity arms. On Tuesday, reports suggest that yet another bank is heading down this route, as it is expected Barclays will announce its plans in the coming week.

 

The Reports

 

According to the newspapers, Barclays private equity arm will be bought by its management team. The team will start a new fund to attract investment from third-party investors.

 

The private equity unit has been on sale for a long time, but it has struggled to generate enough interest. It now looks as though the management team has decided to finally buyout the unit, which specialises in energy and commodity investments.

 

According to the Financial Times, Barclays Natural Resources Investment’s current chief executive, Mark Brown, will help to spin out the unit from the rest of the bank. It is thought the deal would see around £110 billion worth of assets spun away from the core unit.

 

Not Selling the Whole Unit

 

Barclays had hoped to sell off the whole portfolio of the private equity unit, but it looks like the bank is still left with around $1 billion worth of investments after the spin off.

 

The unit, which will change its name to Global Natural Resource Investment, is likely to continue managing around 17 investments in its portfolio. The unit started operating in 2006 and it has so far invested in 28 companies, with investment value up to $3 billion. Some of its most notable investments include the North Sea oil explorer, Chrysador and the wind and solar power developer, Mainstream Renewable Power.

 

On top of this, the private equity unit is looking to raise a new fund from third-party investors. The private equity unit did attempt to fundraise previously in 2012, but this was postponed.

 

Volcker Rule Influence

 

The sale is part of the response by the banks to the toughened regulations. The so-called Volcker rule in the US has meant many banks find it hard to hold on to private equity operations.

 

The Volcker rule has seen plenty of banks shed off their private equity units. Barclays has also previously spun off several other private equity units. The hope is the restructuring process will also help the bank to manage risk in the risk-weighted assets as well as cut down some of its operating costs.

 

The bank has been hit by a number of scandals in recent months. Its trading scandals have even resulted in hefty fines, so the bank is forced to look for ways to set aside billions for compensations.

 

So far, the bank’s management team has declined to comment. But if the reports, first reported by Sky News, are true, then it is likely more will be revealed in the coming weeks.

 

It’ll be interesting to see how the situation develops. There are a number of other banks that are currently looking to sell off their own private equity units, so similar stories could emerge in the coming months.

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