Barclays has been burned by monolines. Again.
This time, however, the death of the financial guarantors might be slightly more uncomfortable for the British bank. The bursting of one monoline has resulted in the market value of monoline-wrapped assets declining from $4.81bn to $225m.
And an impairment charge — the first — for Protium.
Protium, we all remember, was Barclays’ on-balance-sheet but structured finance mess-eliminating accounting ‘tool’. It allowed the bank to change the accounting treatment of troubled assets, thereby shedding some mark-to-market volatility.
In practice, Protium took the form of a $12.6bn 10-year loan to a completely separate company, called C12 Capital Management, and headed up by some former Barclays bankers. Using the loan and $450m of equity put in by C12, Protium buys all those messy assets from BarCap. In return it pays principal and interest (equal to the amount of cash generated by the fund after expenses) back to the bank.
Interestingly, the BarCap loan is by all accounts junior to Protium’s equity — which means, we think, that Tuesday’s $824m Protium impairment charge does nothing to eat into the particle company’s outlays. More than that though, the charge rather places a huge question mark over the purpose of Protium in the first place — which, from what we remember, was insulating the bank from monoline developments.
No wonder Barclays are now trying to get rid of it.
(H/T Former FT Alphaviller and FT hedge fund correspondent, Sam Jones)
Barclays’ toxic Protium deal won’t please bank’s investors – Telegraph
Barclays Protium-purified balance sheet – FT Alphaville
“A definite transfer of value away from Barclays” – FT Alphaville