Who are these guys that banks give fortunes to?
BlackRock to Buy Barclays Fund Unit for $13.5 Billion
If investors don’t like this deal, should you? Most of a bank’s assets are mortgages, and most of real estate value is location value; every company cited below is headquartered in a city of sky-high land value. Further, most of the money banks loan to those who buy parts of the banks themselves is made up on the spot, made possible by the banks’ assets, including the pull represented by getting tax-dollar bailouts. Why can just a few get in on such a sweet deal instead of all society? All of us could enjoy the rise in real estate if we used geonomics. This 2009 article is from Bloomberg, June 12.
by Sree Vidya Bhaktavatsalam and Christopher CondonNew York-based BlackRock Inc., started 21 years ago in a one-room office by former mortgage-bond trader Laurence Fink, agreed to buy Barclays Plc’s investment unit for $13.5 billion to become the world’s largest money manager.
Barclays Global Investors is Europe’s biggest hedge-fund firm, Canada’s largest independent manager of pension-fund assets, and Japan’s No. 1 firm with discretion over client holdings. The purchase, the biggest of a fund manager, creates a company overseeing $2.7 trillion in assets, more than the Federal Reserve.
Barclays, the UK’s third-largest bank, fell 12.5 pence, or 4.1%, to 292 pence in London. The shares have gained 90% this year, the best performance in the five-member FTSE 350 Banks Index.
BlackRock, currently the No. 3 fund company, dropped $6.04, or 3.3%, to $176.56 in NYSE composite trading. The stock has gained 32% this year, compared with a 0.5% rise by the Russell 1000 Financial Services Index.
BlackRock will pay $6.6 billion in cash and the rest in stock for BGI. Financing will include $2.8 billion from the sale of equity to institutional investors and as much as $2 billion in loans from Barclays and other banks.
Barclays will hold a 19.9% stake in the combined company. Bank of America Corp., based in Charlotte, North Carolina, will see its stake in BlackRock drop to 34.2% from the 47% it held on March 31. Pittsburgh-based PNC Financial Services Group Inc. will own 24.6%, down from 32%.
BGI was created in 1996 when Barclays bought Wells Fargo Nikko Advisors and merged it with its BZW Investment Management unit. Wells Fargo Nikko had been a joint venture between San Francisco-based Wells Fargo & Co. and Tokyo-based Nikko Cordial Securities Inc.
The deal will build on Fink’s $8.5 billion takeover of New York-based Merrill Lynch’s investment unit in 2006, which enabled BlackRock to add stock funds.
Barclays, which is seeking to raise capital to replenish loan losses, agreed in April to sell BGI’s IShares exchange-traded fund unit to London-based CVC Capital Partners Ltd. The bank had until June 18 to find a better deal for IShares or all of BGI. CVC will receive a $175 million breakup fee.
Barclays’ President Robert Diamond, 57, stands to receive $26 million from the sale of his stake in BGI. He was awarded BGI options and bought stock before joining its board in 2005. Diamond’s payout comes from a total of about $576 million to be shared by 410 BGI executives.
There has never been a marriage on this scale between managers with differing investing styles. Fink is adding funds at a time when customer redemptions and market declines have slashed assets under management at BlackRock and its competitors. First-quarter net income fell 65% to $84 million.
The fund industry is split between companies that actively manage investments and those that try to match the performance of indexes such as the Standard & Poor’s 500.
While investors withdrew a net $230 billion from US- registered stock and bond mutual funds in 2008, they added $34 billion to index funds. Exchange-traded funds, which aren’t included in mutual-fund data, added $177 billion.
Diversified US equity index funds declined 38% in 2008, edging out their active peers, which fell 39%. That helped persuade more investors to move to passive investing.
Active funds have performed better this year. Diversified active US equity funds returned an average 10% through June 10, compared with a gain of 7.3% for diversified equity index funds.
BlackRock managed $1.28 trillion as of March 31, including $474 billion in bonds, $322 billion in cash products, $266 billion in stock funds and $52 billion in alternative investments such as hedge funds. BlackRock also advises clients on $169 billion in assets including distressed-debt and mortgages.
BGI’s assets included $829 billion in stocks, $427 billion in bonds and $159 billion in cash as of Dec. 31. More than 70% was tied to indexes, including IShares exchange-traded funds. The firm has more than 2,800 funds that track about 250 indexes worldwide.
ETFs accounted for $375 billion of BGI’s assets as of May 31, giving it 48% of the market. ETFs typically track indexes and trade throughout the day like stocks.
The ETF business will give BlackRock an advantage over Pacific Investment Management Co., its biggest fixed-income rival. The Newport Beach, California-based firm, founded by Bill Gross, is starting to build an ETF roster.
The BGI deal pushes BlackRock past State Street, which has $1.44 trillion in assets, mostly in index-based products, and widens the lead over Fidelity Investments, an active manager with $1.25 trillion in assets. Both rivals are based in Boston.
BlackRock will add about $1 trillion in investments that track market indexes. It’s the first top-ranked firm to attempt to combine both types of businesses. The combined company will have more than 9,000 employees in 24 countries.
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