Is iShares Really Being Sold?

Last Updated: 16 April 2024

Jim Wiandt’s London fact-finding trip has been going well … a little too well, if this morning’s blog at on the iShares sale is anything to go by.

There could be a Pulitzer Prize in there for investigative reporting, Jim, if your story turns out to be true.

One of Jim’s smaller scoops is to reveal that Barclays apparently turned down offers in excess of US$ 6 billion for iShares, in order to accept CVC’s lower bid of $4.3 billion and keep the securities lending business at Barclays Global Investors.

What’s going on? Weren’t Barclays in sore need of cash to stave off the arrival of the UK Treasury and the takeover of the board by the apparatchiks of UKFI?

A cursory look at Barclays’ accounts reveals that the bank earned £389 million from securities lending last year, a big increase from £241m in 2007 and £185m in 2006. Not all of the securities lending revenue comes from iShares – Barclays had just over £1 trillion under management at the end of the year, with iShares representing around 22% of the total.

We revealed in a survey last year that Barclays takes a 50% cut of lending revenues from any shares lent out from within its iShares ETFs. As iShares has often mentioned in its marketing literature, securities lending revenues for an investor can easily cover an ETF’s total expense ratio. The flip side of this is of course that, if the bank retains half the revenues from lending and the investor’s half covers fund fees, the bank gets to double what it earns from the TER.

So securities lending is clearly a very profitable business for Barclays Global Investors. But why have revenues from this activity gone up so much? Securities lending expert Roy Zimmerhansl, who wrote a guest blog for a few months ago, threw some light on this for me by explaining that securities lenders earn money too from reinvesting the cash collateral they receive when shares are lent out. The interest spreads available to lenders who do this shot up last year, explaining a lot of the increase in Barclays’ revenues.

Also, according to Zimmerhansl, “there isn’t enough scale in iShares to make it a top-tier lender on its own, so the private equity buyer would have to rely on a third party provider. BGI’s competitiveness as a lender would be damaged, although not destroyed by giving up the iShares volumes.” There are clearly synergistic reasons to keep the lending activities at Barclays.

Whatever the intricacies of the securities lending business – and it’s a complicated one for outsiders to understand – these considerations explain why the bank was willing to shun an extra $2 billion on the purchase price and keep the lending arm at BGI. No doubt iShares, under its new owners, will have a contract to pass its securities lending activities back to BGI. Zimmerhansl also points out that BGI, by becoming an arms-length provider of securities lending activities to iShares, neatly sets itself up in the third-party lending business, and will be able to offer similar services elsewhere too.

But with securities lending being tied back into Barclays, even after the CVC purchase, Barclays retaining a share interest in the new venture, through warrants, and the bank financing over two thirds of the purchase itself, the question arises – is iShares really being sold?

  • Luke Handt

    Luke Handt is a seasoned cryptocurrency investor and advisor with over 7 years of experience in the blockchain and digital asset space. His passion for crypto began while studying computer science and economics at Stanford University in the early 2010s.

    Since 2016, Luke has been an active cryptocurrency trader, strategically investing in major coins as well as up-and-coming altcoins. He is knowledgeable about advanced crypto trading strategies, market analysis, and the nuances of blockchain protocols.

    In addition to managing his own crypto portfolio, Luke shares his expertise with others as a crypto writer and analyst for leading finance publications. He enjoys educating retail traders about digital assets and is a sought-after voice at fintech conferences worldwide.

    When he's not glued to price charts or researching promising new projects, Luke enjoys surfing, travel, and fine wine. He currently resides in Newport Beach, California where he continues to follow crypto markets closely and connect with other industry leaders.

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