Barclays agreed to sell credit card debt worth approximately $1.1bn to Blackstone as it stepped up its efforts to remove assets from its balance sheet ahead of new regulations.
This deal shows how private capital groups, such as Blackstone, which face fewer restrictions that banks do, are entering mainstream debt markets in order to relieve capital pressures for large lenders.
Blackstone’s Credit and Insurance division will purchase the US credit cards receivables of Barclays. The bank will then continue to service these accounts on a fee basis. This sale will be the first of a series to reduce Barclays’ risk-weighted asset.
This move comes a few days after Barclays’ chief executive CS Venkatakrishnan presented a more refined strategic vision of the bank. He also announced an ambitious plan for shareholders to receive £10bn in dividends and stock buybacks. The bank’s goal is to increase revenue by 20 percent in the next 3 years.
Barclays will rely on American consumers in order to achieve this goal. It aims to increase US credit card lending by $8bn in the next 3 years. Blackstone’s purchase of existing debt will enable the bank to expand its lending capacity, without increasing its capital requirements and risk.
Barclays uses a partnership model on the US market. It runs co-branded cards for 20 companies, including The Gap and JetBlue Airways. It generates $3.3bn in income per year and has $32bn in net receivables.
At the strategy day held last week, the bank revealed that it would face a £16bn rise in US card risk weighted assets (RWAs), as it moved to a “internal rating-based” model required by UK regulators. This sale will be one of a series to counteract this RWA inflation.
People familiar with the situation say that Barclays believes a strategic partnership with Blackstone over a long period of time could lead to a future with larger asset sales. The people who spoke to the media said that Barclays is providing Blackstone with credit facilities for managing daily working capital but will not provide seller financing.
Blackstone, which has managed assets for its clients in the credit and insurance sector since March last year when several regional US lenders collapsed, is now buying assets from banks. Blackstone also acquired home improvement loans, auto loan and rooftop solar loans.
Jonathan Gray , Blackstone’s president, told in May last year that the largest private capital group in the world — with $1tn under management — would be a “valuable” partner for banks seeking to sell assets. Gray said that its insurance customers had lower capital costs than banks and were therefore a good place to lend.
He said that, rather than placing all the [risk] on the balance sheet of the company, they could keep 50 cents and place 50 cents in our hands.
Gray informed analysts that Blackstone had formed partnerships with five US banks totaling $6bn, but this figure has grown since then, according to those briefed about the issue.
Blackstone, unlike rivals like Apollo Global and KKR which both own large insurers and manage assets on behalf of them, such as Allstate or AIG, is a manager of assets.
Gray and Stephen Schwarzman, co-founders of Blackstone, told shareholders that the company merged its insurance and credit investment operations in September to prepare for an aggressive push into asset-backed loan markets.