Barclays Shares Drop After Qatar Holdings Offloads Warrants

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Shares of Barclays (NYSE:BCS) tanked almost 5% in trading on Monday after Qatar Holdings sold the remaining 379 million warrants it held in the U.K.-based bank to Goldman Sachs (NYSE:GS) and Deutsche Bank (NYSE:DB) this Sunday. [1] Consequently, Goldman and Deutsche Bank sold 303.3 million Barclays’ shares at the London Stock Exchange at a discount of 4% to Friday’s closing price.

The decline in the share price was triggered by the possibility of dilution in shareholders’ stake in the bank once the warrants are converted to shares, compounded by growing fears of legal repercussions of the ongoing investigation on Barclays by Britain’s Serious Fraud Office (SFO) and Financial Services Authority (FSA).

We maintain a $15 price estimate for Barclays stock, slightly below its current market price. The sale of warrants does not affect our estimate as these warrants are yet to be converted into common stock. We will update our analysis for Barclays as and when such conversion actually takes place over the next year.

See our full analysis for Barclays stock

The sovereign wealth fund Qatar Holdings, invested about £5.3 billion in Barclays over two-phases in 2008, when the U.K.-based bank was looking for quick capital to avoid going to the British government for a bailout. [2] Barclays sweetened the deal for Qatar Holdings by offering it warrants worth £1.5 billion which could be converted into common shares over five years, ending October 2013.

At the end of the capital infusion, Qatar Holdings held a 6.65% stake in Barclays in addition to the warrants. While the stake remains at the same level, the fund sold off the warrants in two roughly equal parts with the first sale occurring about a year after the deal was originally struck. Sunday’s sale by Qatar Holdings marks a complete monetization of the warrants it held – granting the wealth fund a total profit of £1.7 billion ($2.7 billion).

Qatar Holdings still remains the largest shareholder in Barclays.

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Notes:
  1. Qatar cashes in on remaining Barclays warrants, Reuters, Nov 26 2011 []
  2. Qatar fund gains $2.7bn from Barclays accord, Gulf Daily News, Nov 27 2012 []
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