Midway through its takeover bid for Dutch rival ABN Amro, the British bank said it is rescuing a hedge fund client with a $1.6 billion loan, Forbes reports.
Yet the lender has managed to save face. Shares in Barclays closed up 3.0 percent, to 615 pence ($12.40), after the bank reassured investors that Cairn Capital, the hedge fund to which its investment banking division sold a structured investment vehicle, would simply change the type of financial instruments it would use from Barclays.
Barclays Capital is one of the financial market’s main providers of SIV-lites, a financial product which is designed to help clients–typically hedge funds or other banks–make money from the difference between short-term and long-term borrowing rates.
While Barclays structures the SIV-lites, it’s up to the asset manager of a hedge fund like Cairn to decide what sorts of assets are put into them. Somewhat surprisingly, the assets in Cairn’s SIV-lite, which was known as Cairn High Grade Funding, didn’t have exposure to American subprime mortgage debt.
Even so, the $1.6 billion loan from Barclays was fairly large because Cairn’s commercial paper assets had dried up, along with much of the rest of the commercial paper market.