Barclays Protium-One Way To Deal With Toxic AssetsBarclays sold $12.3bn of assets to a new, unrelated entity in the Cayman Islands. Not only did they transfer the assets, they also lent the majority (but importantly not all!) of the funds to purchase them, and transferred the staff to run them, effectively creating a new fund management entity.
Chris Lucas, the Barclays FD, is on record as saying that they weren't trying to change their risk profile. So why did they do it? Step forward our old adversary "Fair Value Accounting". If they left the assets on the trading book, there is a fair chance of taking a big hit if market prices fall. If they put them into banking book, they are to some extent protected from the vagaries of "Fair Value", but can't sell as freely as if they were on the trading book.
The Protium deal should mean that the bank is protected from the whims of "Fair Value", but the assets can still be freely managed. And the bank gets a predictable income stream over 10 years.
What about other banks? This type of approach could make sense to anyone who has toxic assets. We're already in discussions with one.
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