UK bank Barclays Plc may have significant risks from loans to hedge funds and private equity firms, according to Panmure Gordon &Co – one of the leading corporate and institutional stockbrokers .
In addition to holding asset-backed commercial paper, which may contain high-risk assets such as sub-prime mortgages, Barclays bank's securities unit may be hurt by loans to hedge funds and private equity firms, revealed Sandy Chen (Panmure’s London-based analyst) in a statement.
Chen commented: "We think there is a material risk that some of Barclays Capital's counterparties may be in trouble. What was previously a strong source of growth could turn into an area of weakness."
The bank’s shares climbed 3.2 per cent to 658.5 p, valuing the bank at 43 billion pounds.
From 8-10 August, the nine-member FTSE All Share Banks Index fell 6.6 per cent as concern were raised that a crisis in worldwide credit markets may signal losses on loans held by banks and hold back earnings growth.
"The events of the market are liquidity-driven rather than market driven," said Barclays Global Investors spokeswoman Melissa McVeigh.
"There are no fundamental changes to the market. We are maintaining the investment process that we have."
According to Chen, the hedge-fund fee income for Barclays – representing over 50 per cent of its hedge fund revenue - may be hurt as the value of assets in so-called quantitative funds falls on defaults in mortgage-backed securities and worldwide credit tightening.
In addition, Britain’s largest banks may see a slide in revenue as banks cut back on lending due to a rise in defaults, while at the same time some of the smaller UK banks, including Northern Rock Plc and Bradford and Bingley Plc, may see their margins decrease as lending costs rise as they heavily rely on capital markets to fund lending .
Chen also warned that while the drop in UK banking stock prices may be ‘perceived as a buying opportunity’, risks to earnings remain as they tighten lending .
Significant Loan Risk For Barclays
Financial Services > Business Loans > News
Significant Loan Risk For Barclays
Mon, 20 Aug 2007
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