Exclusive: Barclays weighs index unit sale after MSCI approach - sources

Reuters
A logo hangs outside a branch of Barclays bank in London
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A logo hangs outside a branch of Barclays bank in London July 30, 2013. REUTERS/Toby Melville

By Jessica Toonkel and Soyoung Kim

NEW YORK (Reuters) - Barclays Plc (BARC.L) is exploring options for its index business after equity index provider MSCI Inc (MSCI) approached the British bank recently about buying the unit, according to several people familiar with the situation.

MSCI's interest has spurred early-stage discussions at Barclays, the sources said, and the bank has not yet decided whether it should sell the Barclays Indices platform, which includes well-known products like the Barclays U.S. Aggregate Bond Index, which tracks assets with a market value of $16.7 trillion.

All of the sources wished to remain anonymous because they were not permitted to speak to the media.

It could not be determined how much Barclays would get for the unit or how much MSCI offered.

Barclays declined to comment. An MSCI spokeswoman did not have an immediate comment.

Barclays lists 88 major indexes on its website, but the bank offers thousands of benchmarks and indexes, many of which were created for clients.

Almost $2.3 trillion in exchange-traded products and mutual funds track Barclays indexes, making it the second-biggest provider after Standard & Poor's, according to Lipper. That does not include other pools of assets that track the indexes, like institutional separate accounts and collective trusts.

The U.S. Aggregate Bond Index, which Barclays bought as part of the Lehman Brothers acquisition during the financial crisis, is among the platform's best-known offerings. With investors pouring money into fixed-income, passively managed exchange-traded funds (ETFs) and mutual funds, Barclays could get a good premium if it decides to sell the business, according to industry experts.

Since January 2008, investors have poured $1.2 trillion into fixed-income mutual funds and ETFs, according to Lipper.

"If you listen to the exchange-traded fund managers, they all say that fixed income is their area of focus," said Deborah Fuhr, founding partner of ETFGI, a London-based ETF consultant and research firm.

One executive at a large provider of index funds and ETFs, who declined to be identified, said the firm regularly asks index providers to expand their fixed-income offerings.

"I have suggested to each and every one of them to broaden their business to fixed income," said the executive. "MSCI would be a natural buyer for that business since they need more fixed income."

MSCI and other top index providers have been under pressure, as major fund companies look to cut costs on their ETFs, prompting providers to look at new geographies and products for growth.

Last year, Malvern, Pennsylvania-based Vanguard Group said it would move nearly two dozen funds away from benchmarks provided by MSCI. Meanwhile, the FTSE, which is owned by the London Stock Exchange Group Plc (LSE.L) and is one of the dominant index providers in Europe, said it wants to increase its U.S. presence substantially.

ETFGI's Fuhr said Barclays may also decide it is not worth owning the business, given the regulatory scrutiny of benchmarks in general.

Barclays is among a number of banks, including Royal Bank of Scotland Group Plc (RBS.L), UBS AG (UBSN.VX)(UBS.N) and Rabobank (RBOHA.NZ) that have paid big fines for trying to rig the London interbank offered rate (Libor), an interest rate benchmark.

"It might be prudent for some firms to decide not to be in the benchmarking business," Fuhr said.

(Editing by Leslie Adler, Nick Zieminski and Jeffrey Benkoe)

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