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Biggest ETF Provider Puts Up For Sale Sign
March 17, 2009
SAN DIEGO (ETFguide.com) - The ETF segment has been a rare bright spot in the financial services industry. Cash continues to pour into ETFs while mutual funds are dealing with record-high redemptions. iShares, the ETF shop of Barclays Global Investors (BGI), has nearly $260 billion in assets. Nevertheless, Barclays PLC is considering to sell its profitable BGI/iShares unit in order to raise capital.
Popular iShares ETFs include the iShares S&P 500 ETF (NYSEArca: IVV), iShares Barclays Aggregate Bond ETF (NYSEArca: AGG), iShares MSCI EAFE ETF (NYSEArca: EFA), iPath DJ AIG Commodity ETN (NYSArca: DJP) and 208 others.
Barclays PLC (the parent company of Barclays Global Investors) is feeling the economic pinch and, as many other banks, was forced to take losses on mortgage related investments. The thinly capitalized financial giant is caught between a rock and a hard place. To raise money, Barclays will have to sell profitable parts of its business or be forced to sell shares to the British government.
Earlier this year, Royal Bank of Scotland PLC and Lloyds Banking PLC sold parts of their business to the government in exchange for insurance on some $800 billion of troubled assets. How expensive would government insurance of Barclays assets be?
According to a Credit Suisse report, it would cost about $10 billion to insure $100 billion worth of assets. The assumption is that the bank would pay the fee and accept a “first loss” portion of 6% - 10%. In a sale, BGI is expected to fetch about $5 - $6 billion. Due to its low Tier 1 capital ratio, analysts believe that the bank will face growing pressure to raise capital.
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On a different note, BGI announced the industries first “ETF Managed Solutions Guide.” This guide (published quarterly) will feature third party managers who offer model ETF portfolio. “There is a great need for closer communication with clients to help them navigate these turbulent markets,” said Susan Thompson, managing director, iShares ETF Business at BGI.
Over three years ago, ETFguide recognized the need for ETF model portfolios. ETFguide’s six Ready-To-Go Portfolios have outperformed the S&P 500 every year since 2005.
While credit issuer risk is a fact to consider when owning ETNs, ETFs are legally set up as trusts separate from the banks corporations. The assets within these trusts could not be touched, even during bankruptcy proceedings. |
