Barclays acquires Kensington Mortgage Company

In South Africa, Barclays is famous for the ownership of ABSA Bank. Internationally, Barclays is known for helping change the fortunes of BlackRock way back in 2009.

This article will seek to cover;

1. Barclays' recent acquistion,
2. Barclays' ownership of ABSA, and
3. How Barclays changed BlackRock's fortunes?

24 June 2022, Barclays Bank?UK?PLC agreed to acquire?UK?specialist mortgage lender Kensington Mortgage Company Limited ("KMC") from companies controlled by funds managed by Blackstone Tactical Opportunities Advisors L.L.C. and funds affiliated with Sixth Street Partners LLC.

KMC is a leading?UK?specialist residential mortgage lender providing mortgages via brokers to borrowers with complex incomes.?Historically KMC did not hold mortgages on its balance sheet, however following completion of the transaction KMC will retain the majority of mortgages that it originates.?KMC originated approximately?￡1.6 billion?of mortgages (excluding retentions) in the year ended 31 March 2022.?

Alongside acquiring KMC, Barclays Bank?UK?has also agreed to acquire a portfolio of?UK?mortgages consisting primarily of mortgages originated by KMC from October 2021 to completion of the acquisition of KMC.?The KMC Mortgage Portfolio totalled?￡1.2 billion?as at 31 May 2022 (comprising 70% owner-occupied and 30% buy-to-let residential mortgages) with a weighted average Loan-To-Value (LTV) of 77% at origination.

Assuming completion of the transaction occurs at the beginning of December 2022 and the KMC Mortgage Portfolio comprises?￡2.0 billion?of loans at that date, the total consideration payable by Barclays Bank?UK?under the transaction agreements is expected to be?￡2.3 billion.

The transaction will be financed from Barclays' existing resources and is estimated to reduce Barclays' CET1 ratio by 12 basis points (based on Barclays' CET1 ratio as at 31 March 2022) assuming completion in late Q4 2022.

KMC generated?￡65.9 million?of income and a pre-tax profit of?￡0.5 million?in the year ended 31 March 2021. KMC had?￡66.7 million?of gross assets at that date.?Under its existing ownership and funding structure, the KMC Mortgage Portfolio generated a profit before tax of?￡1.1 million?in the six months ended 31 March 2022 before mark-to-market hedging gains of?￡9.2 million.

2. Barclays' ownership of ABSA

Barclays PLC sold 7.4% of its shareholding in Absa which was valued at R11.1bn via an accelerated bookbuild.

1. How did Barclays PLC get its hands on ABSA?
2. When and how did Barclays PLC start selling down its ABSA shareholding?

1) In 2004-2005, Barclays applied to the Bank Supervision Department for approval in terms of section 37(2)(a)(iii) of the Banks Act to acquire more than 49%, but less than 74%, of ABSA.

Barclays PLC acquired stakes in Absa Group Ltd in 2005 in the open market and from various parties but the most significant acquisitions were as follows;

• Remgro sold its entire 9.4% stake in ABSA for R5.06bn, and
• Barclays PLC bought Sanlam’s entire 21,3% stake in Absa for R10,3bn.

Barclays was now holding 56% of ABSA.

In return, Absa Bank acquired Barclays South African Branch Business comprising the Barclays Capital South Africa business and the Corporate and Business Banking business as carried on by the South African branch of Barclays, together with related assets and liabilities for R578m.

Another big transaction took place between 2012 and 2013. ABSA issued 129.5m shares worth R18.3bn to Barclays in exchange for the Barclays’ African operations. This increased Barclays’ stake in ABSA from 55.5% to 62.3%. Absa Group was renamed Barclays Africa Group.

2) Changes in international regulations made it less attractive to own stakes in large banks abroad.

1 March 2016, Barclays Plc announced its intention to divest part of its 62.3% shareholding in Barclays Africa over the next 2-3yrs.

5 May 2016, Barclays Plc sold 103,592,491 ordinary shares in the issued share capital of Barclays Africa (12.2%) at a price of R126 per share through an accelerated bookbuild placing raising gross sale proceeds of R13,05bn. This decreased Barclays stake to 50.1%.

In 2017, Barclays PLC sold 33.7% of Barclays Africa Group Limited (ABSA).

Barclays placed 285,691,979 ordinary shares of Barclays Africa Group at a price of R132 per share, raising gross sale proceeds of R37,71bn. Post the bookbuild, Barclays Plc's total interest in Barclays Africa decreased from 50.1% to 16.4%.

4 Sept 2017, a transaction was effected in which a 1.5% stake in Barclays Africa was transferred from Barclays to an interim B-BBEE structure which was established by Barclays Africa.

Barclays’ total interest in Barclays Africa then decreased to 14.9%.

In 2018, Barclays PLC received approval from the Prudential Regulatory Authority and Financial Conduct Authority in the United Kingdom for the for the full regulatory deconsolidation of Absa Group (formerly Barclays Africa Group), effective 30 June 2018.

The separation of Absa Group from Barclays PLC was one expensive transaction. Barclays PLC contributed R12.6 billion in 2017 towards the three-year separation programme, which comprised mainly IT and brand projects. Barclays Africa Group is renamed Absa Group on 11 July 2018.

Before the latest bookbuild the major shareholders were;

• Barclays PLC - 14.9%.
• PIC - 6.24%

3. How Barclays changed BlackRock's fortunes?

BlackRock’s acquisition of 100% of Barclays Global Investors in a cash-and-share deal worth $15 billion in 2009 changed its fortunes.

In 2008, BlackRock's assets under management were +-$1.8 trillion. December 2009, BlackRock bought 100% of Barclays Global Investors in a cash-and-share deal worth $15 billion. BlackRock's assets under management now sit at a staggering $10.01 trillion.

Barclays Global Investors (BGI) was one of the world’s largest asset managers and a leading global provider of investment management products and services at the time. BlackRock acquired BGI including its market-leading exchange traded fund platform iShares.

BlackRock's acquisition of Barclays Global Investors made it become a diversified and fully integrated asset management firm with $3.2 trillion worth of assets under management in December 2009.

How did BlackRock settle the $15bn cash-and-share transaction? BlackRock issued 37,566,771 shares of common stock, convertible stock to a wholly-owned subsidiary of Barclays Bank and paid ~$6.65 billion in cash to Barclays Bank.

Barclays also got two seats on BlackRock's board.

The shares issued gave Barclays a 19.9% stake in BlackRock. BlackRock then became one of the biggest shareholders in Barclays, with a 7.1% stake. The couple was in honeymoon.

After the 2008 global financial crisis, Basel Committee on Banking Supervision developed Basel III, which is an internationally agreed set of measures developed in response to the financial crisis which aim to strengthen the regulation, supervision and risk management of banks.

The introduction of the Basel III regulations which meant banks have to hold more capital against minority stakes in asset managers and other firms made it "uncomfortable" for banks to own such stake.

Due to the change in regulations, Barclays then sold its 19.9% stake for $6.1 billion in 2012. Barclays' shares were sold by way of an offering and a related buyback by BlackRock of up to $1 billion of the shares. The marriage last for 3 years.

From assets under management of just $1.8 trillion in 2009, BlackRock has certainly cemented its position as one of the largest asset managers in the world. BlackRock's assets under management currently sit at $10.01 trillion after rising $1.33 trillion in 2021.

Barclays always goes big with acquistions. The acquisition of Kensington Mortgage Company will enable Barclays to broaden its product offering and capabilities in the?UK?mortgage market, extend the number of customers we can serve and grow mortgage originations to better utilise our strong?UK?funding base.