The main Middle East investor who pumped billions of pounds into Barclays two years ago has locked in a profit of about 3 bln pounds on the investment after a complex deal that sent the bank's shares lower.
The sale came as concern mounted that income at Barclays Capital (BarCap), the investment bank arm, will fall short of expectations for the third quarter and possibly next year.
PCP3, a vehicle of Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi's ruling family and the owner of English soccer team Manchester City, exercised 131.6 mln warrants in Barclays late on Thursday and simultaneously entered into a hedging arrangement with Nomura.
The deal leaves Sheikh Mansour with a 6.3% holding in Barclays, which he has fully hedged to protect him from any fall in the share price.
As part of the complex hedging transaction, Japanese bank Nomura sold 220 million shares in Barclays to hedge its own exposure. The shares were sold before Friday's opening at near 295 pence per share, a person familiar with the matter said.
Barclays shares closed on Friday down 2.2% at 297.25 pence, one of the weakest UK blue-chip stocks. The stock fell as low as 292.85p, its lowest since for five weeks.
"Abu Dhabi still have upside exposure in the stock, but they're taking some money off the table," said Manoj Ladwa, senior trader at ETX Capital.
Shares were also hurt by an expectation that investment banks will suffer a drop in income of at least 10 to 20% in the third quarter from the second quarter, after a slow July and August.
"Sentiment is poor, Q3 investment bank earnings will be weak and, realistically, the best possible outcome for Barclays Capital is modest outperformance," said Ian Gordon, analyst at Exane BNP Paribas.
BarCap's revenue could dip to less than 3 bln pounds in the third quarter from 3.3 bln in the previous three months. Credit Suisse analysts said there was a risk that expectations for 2011 were also "materially too high".
Barclays is also in talks to buy UK credit card business Egg from U.S. bank Citigroup in a possible 400 mln pound deal, Sky News reported on Friday.
ABU DHABI PROFIT
Abu Dhabi's warrants, which allow a holder to buy a stock at a specific price during a specified period, were exercised at 197.775 pence per share.
Abu Dhabi pumped 5 bln pounds into Barclays under a controversial fundraising agreed two years ago that allowed the bank to avoid taking taxpayer funds at the height of the financial crisis.
But the deal was criticised by existing shareholders for being too generous to the new investors.
Abu Dhabi could have owned as much as a 16.3% stake in Barclays under the deal. But it has pocketed much of its profit and with the latest deal its PCP3 investment vehicle is sitting on a total profit of about 3 bln pounds on its Barclays bet.
PCP3 has been hedging the position this year and it said the latest transaction marked the completion of a strategy "that locks in a significant gain … while retaining further upside".
Barclays also raised funds from Qatar, China, Japan and Singapore investors in 2008.
Qatar still holds 379.2 mln warrants that can be exchanged into shares under the same terms as Abu Dhabi. The warrants are exercisable until 2013.
