Barclays may have significant risks from loans
Barclays, the UK bank vying to buy ABN Amro Holding, may have ‘significant’ risks from loans to hedge funds and private equity firms, said Panmure Gordon & Co, which rates the shares ‘sell’.
By Agencies |
LONDON: Barclays, the UK bank vying to buy ABN Amro Holding, may have ‘significant’ risks from loans to hedge funds and private equity firms, said Panmure Gordon & Co, which rates the shares ‘sell’. In addition to holding asset-backed commercial paper, which may contain high-risk assets including subprime mortgages, the London-based bank’s securities unit may be hurt by loans to hedge funds and private equity firms, Sandy Chen, a London-based analyst at Panmure, said on Monday.
“We think there is a material risk that some of Barclays Capital’s counterparties may be in trouble,” said Chen. “What was previously a strong source of growth could turn into an area of weakness.” Shares of Barclays, down 9.8% this year, rose 3.2 to 658.5 pence in London, valuing the bank at £43 billion ($86 billion).
The nine-member FTSE All Share Banks Index fell 6.6% over two days through August 10 amid concern that a crisis in worldwide credit markets may trigger losses on loans held by banks and hold back earnings growth. “The events of the market are liquidity-driven rather than market driven,” said Barclays Global Investors spokeswoman Melissa McVeigh in an interview. “There are no fundamental changes to the market. We are maintaining the investment process that we have.”
BGI, a San Francisco-based fund manager, will probably say one of its hedge funds has had a ‘challenging’ time, the Wall Street Journal reported on Monday. Barclays’s hedge-fund fee income may also be hurt as the value of assets in so-called quantitative funds falls on defaults in mortgage-backed securities and worldwide credit tightening, Chen wrote.
Revenue at the UK’s biggest banks, including Royal Bank of Scotland Group, may fall as banks cut back on lending as defaults rise, Chen said in an interview. Simultaneously, smaller UK banks including Northern Rock and Bradford & Bingley, which rely on capital markets to fund lending, may see margins shrink and earnings slow as lending costs rise, Chen said.
While the drop in UK banking stock prices may be ‘perceived as a buying opportunity’, risks to earnings remain as they tighten lending, said Chen, who lowered his rating on British lenders including Barclays and HSBC Holdings on August 10.
“We think there is a material risk that some of Barclays Capital’s counterparties may be in trouble,” said Chen. “What was previously a strong source of growth could turn into an area of weakness.” Shares of Barclays, down 9.8% this year, rose 3.2 to 658.5 pence in London, valuing the bank at £43 billion ($86 billion).
The nine-member FTSE All Share Banks Index fell 6.6% over two days through August 10 amid concern that a crisis in worldwide credit markets may trigger losses on loans held by banks and hold back earnings growth. “The events of the market are liquidity-driven rather than market driven,” said Barclays Global Investors spokeswoman Melissa McVeigh in an interview. “There are no fundamental changes to the market. We are maintaining the investment process that we have.”
BGI, a San Francisco-based fund manager, will probably say one of its hedge funds has had a ‘challenging’ time, the Wall Street Journal reported on Monday. Barclays’s hedge-fund fee income may also be hurt as the value of assets in so-called quantitative funds falls on defaults in mortgage-backed securities and worldwide credit tightening, Chen wrote.
Revenue at the UK’s biggest banks, including Royal Bank of Scotland Group, may fall as banks cut back on lending as defaults rise, Chen said in an interview. Simultaneously, smaller UK banks including Northern Rock and Bradford & Bingley, which rely on capital markets to fund lending, may see margins shrink and earnings slow as lending costs rise, Chen said.
While the drop in UK banking stock prices may be ‘perceived as a buying opportunity’, risks to earnings remain as they tighten lending, said Chen, who lowered his rating on British lenders including Barclays and HSBC Holdings on August 10.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
