‘Barclays raid their life-savings to avoid government bail-out’

April 3, 2009 at 3:52 pm

Over the last few years banks and building societies in the UK, once believed to be immortal, have been brought to their knees. The boom went bust for Northern Rock, Bradford and Bingley and RBS, with many others hanging on by their fingernails. If they didn’t end up in administration, then they were in desperate need of some pocket money from the government. The Chancellor was happy to provide emergency assistance, but it came with certain conditions attached. Amidst all this drama, there was one bank which seemed determined to ride out the storm unaided, without taking a penny from the government and therefore also avoiding complying with associated conditions.

Barclays seems to have stored vast amounts of money, in various places, for rainy days such as the monsoon we are experiencing around the world at the moment. The big question is: where’s it coming from and how long will it last?

It is believed that Barclays might be able to draw around £3 billion from CVC Capital Partners, who are some of the world’s largest private equity firms that include the Formula One Group and Debenhams, for 80% of iShares. In case you were wondering, an iShare is not something communal from Apple but a group of exchange-traded funds that are a bit like stocks. If Barclays cash-in their piggy bank of iShares for this grand sum, it might mean they don’t have to take a penny from the government and their board will avoid the sort of public flogging that Fred Goodwin has recently experienced.

Although this is good news for Barclays, this could put a spanner in the works for Mr Darling’s overall plan. The whole idea was to get banks to start again from scratch, with a clean balance sheet, and resume borrowing and lending from each other in a fair and properly regulated manner. If Barclays cash in their life-savings then this might not happen.

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