Barclays Bank set to sell entire $6.1 billion BlackRock stake

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Barclays Bank ( BCS ) - the second largest bank in the United Kingdom by assets - announced Monday that it will dispose of its entire ownership in BlackRock ( BLK ), the world's largest asset manager. The bank currently holds almost 20 percent of BlackRock's ownership stake, comprising both common stock and Series B convertible preferred stock

BlackRock agreed to buy up to $1 billion of the $6.1 billion (£3.8 billion) of the shares the bank holds.

New rules created by the Basel Committee on Banking Supervision prompted the sale, with the main issue coming from a regulation that requires Barclays to offset any declines in its ownership stake with additional capital . The bank wrote down the value of its investment to $5.3 billion (£3.4 billion) in September 2011, and took the remaining gains between then and now into equity .

"It's a less attractive asset under the Basel III rules," Ian Gordon, an analyst at London-based Investec, told Bloomberg News . "Barclays can remove it from that debate."

Barclays made its initial investment in December 2009, when BlackRock stood close to the peak of its valuation at $217 per share . That deal saw the bank exchange its Barclays Global Investors unit for a $15.2 billion deal that included almost 20 percent of BlackRock and $6.6 billion in cash.

The news comes at a complex time for bankers and investors. JPMorgan Chase's ( JPM ) London trading unit was recently rocked by the revelation  that one of its major hedging trades blew up and cost the bank $2 billion, prompting the immediate resignation of chief investment officer Ina Drew and series of difficult questions for chief executive officer Jamie Dimon.

The Financial Times  reported last week that the relevant unit at JPMorgan - the chief investment office  -holds over $100 billion in risky asset-backed securities and structured products, to the point that they massively dominate that market in these securities. An anonymous trader from a competing institution told the FT that "I can't see how they could unwind these positions because no one can replace them in terms of size. It's a bit of the same problem they face with the derivatives trade. They pretty much are the market."

Barclays losses in its BlackRock holding won't imperil the bank's overall stability, but the rule change which prompted the sale represents part of a larger push to force retail banks out of the asset management business. Yet it seems that regulatory efforts to curb the constant blending of traditional banking and market speculation will continue to run up against the ceaseless creativity of the financial industry, especially in a world where porous regulations and liquid capital can flow across international boundaries to seek out the highest rates of return .

The biggest worry for investors should not be the size of JPMorgan or Barclays' losses - it should be which banks still sit on undiscovered crises of capital losses.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: News Headlines , Banking and Loans , Investing Ideas

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