A Barclays sell-off would be a mistake
IF Barclays does end up selling its Barclays Global Investors division to a rival such as BlackRock, it will be faced with two major problems.
The first would be one of credibility: how can Barclays continue to operate as a universal bank if it lacks an asset manager? Selling iShares makes some sense; the business was losing market share because Barclays had to rely on third party distributors in the US who were launching their own rival products. But ditching the whole of BGI would cripple its wealth management capability. The second problem is that while the bank would have plenty of capital after any disposal, its entire strategy – to remain independent of government and to use the recession as an opportunity to grow – will have been damaged, unless it uses the money to snap up another rival. There is as yet no sign that this would be on the cards, however. And even if there were, why shuffle assets around? The firm’s current policy, which is to focus on projects with a high return on capital (and ditch trades and deals that gobble up too much capital for too little return), to tackle remaining problem assets (including those insured by monolines), to cut leverage and reduce its balance sheet over the next 18 months makes a lot of sense. Observers might view a sale of BGI as a signal that the board isn’t convinced that its own strategy is working – unless, of course, the premium fetched for the business is mouth-wateringly high, an unlikely prospect at this stage of the economic cycle. Sure, like any other publicly listed business, Barclays needs to take seriously any offer to buy any part of its operations. But it is hard to see how getting rid of BGI for $10bn or so could possibly make any sense.
RENTS FURTHER TO FALL
ONE leading property investor recently told me that he thought that the substantial collapse in office development pipelines – new space coming onto the market – would be good news for his industry. I’m not so sure.
The figures are undoubtedly stark. CBRE reported a City pipeline of 4.4m sq ft in the first quarter of 2009, down by 44 per cent from the peak of 7.8m sq ft a year earlier. The West End pipeline of 2.2m sq ft in the first quarter of 2009 was down by 12 per cent from its peak of 2.5m sq ft in the first quarter of 2008.
But as Kelvin Davidson of Capital Economics writes, take-up has fallen at an even faster rate, meaning that in relative terms the pipelines have in fact risen. This has continued to put downwards pressure on rents. Knight Frank and CBRE suggest that City and West End take-up in the year to the end of the first quarter was 50 per cent and 30 per cent lower than in the previous year. These declines have been even more precipitous than that of the new development pipeline. As a result, despite falling in absolute terms, the new development pipeline expressed in “years of take-up” has in fact increased in both markets.
And as Capital Economics points out, this data only measure new lettings. Jones Lang LaSalle has calculated that the release of now-unused space back onto the lettings market means net take-up was negative in the City (-2.6m sq ft) and West End (-1.2m sq ft) in the first quarter. The City pipeline and existing availability are together worth 4.5 years of current take-up; it is three years in the West End. So rents are still likely to fall for a while.
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