Barclays' sale of its investment arm to US asset manager BlackRock for 13.5 billion dollars (8.2 billion pounds) marks the bank's latest bid to shore up its finances without government help.
The hotly-anticipated deal for Barclays Global Investors (BGI), reached late Thursday, will hand Barclays 19.9 percent of a new company to be called BlackRock Global Investors.
The bank said in a statement that it would realise a net gain of about 5.3 billion pounds to cement its balance sheet. Its share price dropped 3.20 percent to 294.75 pence in early afternoon London trade as the deal had been widely expected.
Barclays had last year won a seven-billion-pound capital injection that was largely backed by investors from Abu Dhabi and Qatar, as it sought to survive the credit crunch without government aid. However, Abu Dhabi recently sold most of its holding.
"The short-term benefits of the BGI disposal are obvious; a 5.3-billion-pound gain will help both the reported earnings and the capital ratios in 2009," said Panmure Gordon analyst Sandy Chen.
"Our concerns are longer-term, and relate to sustainability of the remaining group's earnings."
Two of Barclays' main rivals, Lloyds Banking Group and the Royal Bank of Scotland (RBS), are now government-controlled, bailed out by the taxpayer in the wake of huge losses arising from the global financial crisis.
RBS was also felled by its role in the 2007 consortium takeover of Dutch bank ABN Amro -- following a bid battle which Barclays was fortunate enough to lose.
The record-breaking ABN deal was clinched before the credit crunch erupted in August 2007, sending global markets slumping and economies tumbling into recession.
The BGI purchase, which has yet to be approved by shareholders, will double BlackRock's size and create a firm managing assets worth some 2.7 trillion dollars, employing more than 9,000 people in 24 countries, according to the New York-based investment group.
"The mega-deal will create the world's biggest asset manager and help BlackRock expand their global presence," said analyst Nick Serff at financial spread-betting firm City Index.
The news has also sparked speculation about renewed mergers and acquisitions (M&A) activity -- despite jitters about the world economic downturn.
"With BlackRock's acquisition, the global markets will be looking out for similar deals," said Manoj Ladwa, senior trader at ETX Capital.
"Gone are the days when bank boards thought diversifying into asset management would offset the volatility of investment banking earnings.
"Now there will be a pack of hungry M&A advisers looking at other banks' investment arms. In the short term expect the market to respond positively to the news."
In the deal, which includes BGI's market-leading iShares trading platform, BlackRock would acquire BGI for 6.6 billion dollars cash and 37.8 million dollars in shares.
However, Barclays had agreed in April to sell iShares to private equity group CVC Capital Partners for 4.4 billion dollars.
CVC now has five business days to decide whether it wants to match BlackRock's bid -- but if it walks away it will receive a "break fee" of 175 million dollars.