Barclays share placing undermines confidence

IPIC's decision to sell 1.3 billion shares in the bank undermines confidence in the stock and in sovereign fund investment

Holly Cook | 02-06-09 | E-mail Article

Barclays shares slumped almost 14% on Tuesday after Credit Suisse placed 1.3 billion shares in the UK bank at 265p per shares on behalf of Abu Dhabi-based investment group International Petroleum Investment Company (IPIC).

Traders said the stake sale, which accounts for almost 12% of Barclays’ fully-diluted capital, had gone well and was oversubscribed—good news for banks in general as it implies the stock market has not only strengthened but that demand is there for near-record sized share placings. For IPIC, this was more than just ‘good news:’ the sovereign fund bought its stake in October 2008 when Barclays shares were firmly under the cosh. Following the rally in the sector since early March, much of the £3.4 billion raised today will have been pure profit.

For shareholders, however, this spells bad news, traders said today. “It does raise the question of why they’ve chosen now to sell their stake,” one London-based trader said, adding that “the market rally may have slowed down recently but to dump £3.4 billion of shares does rather undermine confidence—not only in the stock but also in sovereign wealth funds’ investments in this country.”

At the time of buying into the bank, the Abu Dhabi sovereign fund had claimed to be a long-term investor in the British group and today stated the disposal of some of its Barclays stake will enable IPIC to focus on its long-term strategy of investing in hydrocarbon-related opportunities. As such, today’s news appears to have been taken by the market as a clear sign that the investment group was only ever in it for a short-term gain.

Another trader noted that IPIC’s move could start a chain reaction: “And if this were to happen we could end up with a stock overhang…and with the banking sector rally grinding to a halt.”

In Tuesday afternoon deals, shares in Barclays had dropped 13.9% to 272.25p, dragging with them Lloyds Banking Group, 3.6% lighter at 69.9p and Royal Bank of Scotland, off 3.2% at 38.9p. Banking sector losses were largely responsible for the FTSE 100 index’s 0.7% slide to 4,476.6, down 29.6 points.

Holly Cook is Site Editor of Morningstar.co.uk and Hemscott.com. She would like to hear from you but cannot give financial advice. You can contact the author via this feedback form.
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