Tuesday, November 10, 2009

Barclays’ Protium-purified balance sheet

Want to know what Protium — the $12.bn credit asset sale announced by Barclays back in September — was really for?

Out today: Barclays’ third-quarter 2009 Interim Management Statement.

And boy, did Protium have an impact. To wit, the bank’s US subprime exposure.

The majority of Other US Sub-Prime exposures are measured at fair value through profit and loss. Exposure reduced by £2,911m to £530m (31st December 2008: £3,441m), driven by the Protium sale of £993m, other net sales, paydowns and other movements of £922m and gross losses of £765m. Stronger Sterling resulted in a decline in exposure of £231m.

And exposure to the monoline insurers, which has dogged Barclays for months, has also been reduced. That’s just in the nick of time too — the bank has virtually no investment-grade monoline exposure left, and has even taken the category out altogether from its monoline-wrapped US RMBS section, where:

Net exposure reduced by £1,632m to £7m (31st December 2008: £1,639m), of which £1,164m relates to the Protium sale.

And on monoline-wrapped CMBS:

Net exposure reduced by £1,816m to £38m (31st December 2008: £1,854m), driven by the Protium sale of £1,208m.

And on monoline-wrapped CLOs:

Net exposure reduced by £1,697m to £3,242m (31st December 2008: £4,939m), of which £396m related to the Protium sale.

That’s a whopping £8.06bn of sketchy stuff -gotten rid of, leaving the bank with just £3.82bn of less desirable exposure, or $575m if you leave out the CLOs — which seem harder to shift into Protium for some reason. And remember, while Barclays keeps exposure to Protium assets via its loan (where it will have to make some impairments and capital provisions) they are still effectively off of its balance sheet. As the FT’s Gillian Tett put it — they are out of the front room and into the cellar.

In table form:

Barclays to sell £4bn assets - FT

That just leaves £2.22bn of CDO exposure — which Protium did not impact — for Barclays to shift.

Oh wait:

Press reports suggest that Barclays is considering another accounting wheeze, this time for the CDO book . . . It is said to be similar to the Protium deal which offloaded monoline & RMBS mark-to-market from the balance sheet into a new ‘independent’ company called C12, which was funded by Barclays and staffed up by Barclays, thus negating any true risk transfer. It’s all very canny but hard to get too excited about, Barclays’ track record of innovative accounting is now legendary.

Related links:
`Curious’ case of Barclays asset sale - FT
Is it a SIV, is it a fund, or is it just accounting arbitrage at Barclays? - FT Alphaville
The ongoing structured finance mess at Barclays - FT Alphaville

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