Abu Dhabi cashes out of Barclays

Abu Dhabi’s Sheikh Mansour bin Zayed Al Nahyan is selling the 1.3 billion Barclays shares he bought in the bank’s rescue only last November, Barclays announced yesterday, and stands to almost double the value of this investment.

According to a report in the Wall Street Journal today, International Petroleum Investment Corp, an investment vehicle of the Abu Dhabi royal family chaired by Sheikh Mansour has decided to sell its interests in Barclays because of a ‘long-term investment strategy in hydrocarbon related activities’.

Big profit

A $2 billion initial investment will be now be worth close to $4 billion. Shareholders who originally opposed the rescue plan for its generous terms to the investors will doubtless be outraged that what was sold to them as a long-term commitment has proven nothing of the sort.

The Financial Times also reports that IPIC is also selling its $2.5 billion in preference shares with a 14 per cent coupon, a process that could be completed tomorrow, netting another multi-billion dollar profit.

There is bound to be considerable speculation about the motives for cashing out at this point. Does this investor subscribe to the W-shaped recession theory, and therefore regard cashing out at the high point of a bear market rally as obvious good sense?

Is this, as the brief statement from the seller’s office claimed, merely a reallocation of capital towards the booming oil sector? If so, it might still represent something of a high water mark for the rebound in banking stocks from their recent lows.

The immediate business outlook for banks is lousy and many will need to raise more capital which is not likely to be good for bank stocks. There could also be another financial crisis, perhaps in the European banks, coming up.

Good business

Or this this just simply a matter of taking a quick profit? Anybody with cash can take advantage of distressed circumstances to buy bargains and then sell them later.

It must be disappointing for Barclays to lose its Abu Dhabi shareholder, or at least see this interest downsized, but it is much less of a disaster for the bank than if he had not come along last November. Then the bank would have been forced into the arms of the UK government and partial nationalization.

Quite apart from the impact on executive compensation packages, and the consequences for the loss of the bank’s best talent, then the recovery of the bank would have been under the supervision of civil servants whose flair for high finance is usually conspicuous only by its absence.