You may recall yesterday we told how shares in Barclays fell after a report suggested the bank might have got itself into difficulty with something called SIV-lites.
The current liquidity crisis seems to rotate around horrible jargon and acronyms.
Sub-prime is bad enough; it refers to mortgages for people with poor credit records. Then there are CDOs, which parcel various forms of debt and provide various routes for investors to buy into the debt. Then, to cap it all, there are SIV-lites. They are a lot like CDOs, but raise money via the short term credit markets.
It was a Barclays man, Edward Cahill, who came up with the idea of these SIV-lites, and the bank has been helping other banks and funds set up these vehicles.
But over the last few days, it seems to have all gone pear-shaped. First, Mr. Cahill has resigned. No one seems to know why, but we suspect it is quite easy to take a pretty good guess. Then, the German state owned bank, SachsenLB went close to collapse after if got itself mixed up with SIV-lites, set up with the help of Barclays. Some rumours suggest Barclays might be forced to throw in a fair chunk of money, several hundred million dollars, or so say the rumours.
And with all that talk, the Barclays share price falls.
It’s significant, because the Barclays offer from ABN Amro includes an element of share swap, and if their shares fall in value, the ABN offer becomes less valuable. Since Barclays made its bid for ABN, its share price has fallen by 16 per cent.
In all, the Barclays bid is now worth around 60 billion euros, compared to the RBS, Fortis and Santander offer, which has a much larger cash portion, worth around 71 billion euros.
Refer to our article above, in which Standard and Poor’s has suggested bank profits could plummet. If you were a shareholder in ABN, then right now you would probably want cash for your shares and be most unhappy with the idea of acquiring shares in another bank.
It appears that Barclays finds itself with an uphill struggle.
When Barclays first made its bid for ABN, it was said that if it was unsuccessful, the Bank will itself fall under the radar of predators and might well become the subject of an offer. In the current environment, it is difficult to believe anyone would be able to buy a bank like Barclays. The only investor out there who could easily find the money is China. With its massive foreign reserves, it’s looking for places to put its money and has already talked about investing into Barclays.
A Chinese buy of Barclays would raise political hackles, however, and it seems this is unlikely to happen unless, that is, things get desperate.
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