Barclays Slammed For Off-Balance Sheet Toxic Assets Scheme

BarclaysCapital

We’re not the only ones who find Barclays’ (BCS) new off-balance sheet entity to dispose of toxic assets to be worrisome. Basically, the company has created and loaned money to a new Cayman Islands company that will buy toxic asssets from Barclays.

Telegraph: The sale will allow the bank to “derecognise the assets”, shielding it from any further fall in their “mark-to-market” value. Instead, Barclays will use a different accounting treatment to take “a longer term view” that will provide “a boost to its capital strength by punting the issue into the long grass”, Ian Gordon, banks analyst at Exane BNP Paribas, said.

Simon Maughan, analyst at MF Global Securities, described it as a way for Barclays to “wriggle free from its toxic assets“. Barclays has a core tier one capital ratio of 8.8pc, which Mr Gordon said was expected to be under pressure as the assets face further mark downs.

Regulatory arbitrage: alive and well!

Oh, and then there’s this lovely bit:

The deal also promises to make 45 former investment bankers at Barclays Capital very rich. They have resigned to join Protium, which will charge Barclays a $40m annual management fee, including office costs. The bank stressed that no leaver will receive a severance payment.

Why does that sound familiar? Any guesses?

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.