City dismayed by BZW sale to Credit Suisse for pounds 100m

Barclays admitted yesterday it had raised only pounds 100m from the sale of BZW's equities and corporate finance operations to CSFB, much less than original expectations. Tom Stevenson and Lea Paterson examine how the bank was outmanoeuvred by its Swiss rival.

Martin Taylor, chief executive of Barclays, said he was far from disappointed by the pounds 100m the bank will receive from CSFB for its its European investment banking operations. To everyone else, however, yesterday's disposal appeared to have been badly bungled.

"Its a fair price", said Mr Taylor, who has been widely criticised for the way he put BZW up for sale without first finding a buyer. "A lot of analysts over-estimate the attractiveness of the businesses, partly because they work in them. They can't believe anyone had the temerity to sell an equities business".

Few agreed with his gloss, however. "It's a very disappointing disposal", said one analyst, who declined to be named. Another said: "The price is as bad as it looks, although the early expectations that Barclays would raise pounds 400m-500m from the disposal of all of BZW's equities and corporate finance arms were probably over-optimistic."

Barclays admitted yesterday that the price tag represented only two-thirds of the net asset value of the businesses to be sold, which stands at around pounds 150m, and rather less than the operations' turnover in the first six months of 1997.

"I was very surprised to see it sell at less than net asset value," said Kathryn Newton, banking analyst at UBS. Another was less diplomatic: "To sell at less than net asset value is a bad disposal", he said.

Mr Taylor was unrepentant, however, adding: "CSFB was the most credible buyer from the start and the fact that they have only bought what they wanted to buy means that will minimise the degree of waste."

CSFB, which has reserved pounds 50m as a "sweetener" for Barclays' staff, was positive yesterday. "We feel very very good about the acquisition", said Stephen Hester, chief financial officer at CSFB.

Barclays' losses from the sale could substantially exceed the pounds 50m difference between the sale price and the net value of the assets. To start with, it faces heavy restructuring costs in BZW's back office, which CSFB plans to sub-contract to Barclays, leaving the British bank to bear the cost of any redundancies. Barclays will also honour its guarantee to staff to pay bonuses until February.

Barclays put BZW up for sale last month, after deciding it was unprepared to foot the high investment bill needed to make its subsidiary a viable competitor with the increasingly large and powerful American players such as Morgan Stanley and Goldman Sachs.

Mr Taylor said at the time of flagging the disposal that the complexity of untangling parts of BZW to be sold meant a secret deal would be impossible.

After initial interest from a string of rival banks, however, the shortlist of potential buyers rapidly narrowed to just one after its US rivals such as Donaldson, Lufkin & Jenrette and Bankers Trust dropped out, thinking Barclays would only entertain a full bid. CSFB was then in a position to bid low for only the parts of the business it really wanted.

Barclays is still looking for buyers for its Australasian and Asia-Pacific operations. While it is strong in Australia and New Zealand, and likely to finalise a quick sale, the Far Eastern operations are more problematical, especially because of the recent turmoil in those markets. Mr Taylor said he hoped to reach a sale agreement for both businesses "before the end of the year".

The deal raises problems for NatWest, trying to sort out NatWest Markets, its beleaguered investment banking arm.

Yesterday's sale does not mark the end of Barclays' problems with its investment banking arm. Mr Taylor now faces the challenge of boosting profitability in the rump of BZW that Barclays has retained. Ms Newton of UBS said: "The next questions for Barclays are what difference the sale will make to its profitablity and how can it improve profitability in the remainder of BZW".

Outlook, page 25