Barclays lost about US$100m on collapsed Advent bid: sources

[LONDON] The collapse of an US$8 billion biotech acquisition and a slump in the Swedish krona left Barclays with a major loss last month.

The London-based bank lost about US$100 million on currency hedges after the US private equity firm Advent International and Singapore's sovereign wealth fund GIC withdrew their bid for Swedish Orphan Biovitrum AB in December, people with knowledge of the matter said.

Morgan Stanley and Deutsche Bank also lost about US$20 million each on the trades, the people said, asking not to be identified discussing private figures.

Spokespeople for Barclays, Deutsche Bank, Morgan Stanley and Advent declined to comment.

In September, Advent and GIC bid to buy Sobi for 69 billion kronor (S$10 billion) in what would've been the biggest Nordic buyout in years. As part of the deal, Advent entered into a so-called deal contingent currency trade to reduce its exposure to swings in the krona, the people said. It had sought to hedge about US$3 billion worth of Swedish krona and Barclays took a major portion of the trade, one of the people said.

The loss will ding the first set of results overseen by CS Venkatakrishnan, who rose to chief executive officer in November after previously overseeing the trading business. Rates and currency traders at US banks struggled in the fourth quarter in what was otherwise a banner year for investment banks.

Barclays is set to provide its fourth-quarter results next month. Analysts expect fixed income, currency and commodities revenue to fall 12 per cent year on year, according to data compiled by Bloomberg.

Deutsche Bank is scheduled to report on Thursday (Jan 27) and its executives said in December that the lender faced almost unprecedented volatility in interest rates, currencies and emerging markets last quarter. Morgan Stanley's 31 per cent drop in fourth-quarter fixed-income trading was a rare blemish on the otherwise strong earnings it posted last week.

The failed takeover of Sobi is a painful reminder for banks of the risks they face with contingent hedging contracts. A common tool in cross-border deals, contingent hedging can leave lenders exposed to hefty losses if deals fail, as the client is typically free to walk away from the trade.

Advent and GIC required that 90 per cent of Sobi shares be tendered in their offer, and extended the deadline multiple times to try to reach that mark. Last month, they withdrew the bid after only getting to 87 per cent. That left Barclays and other banks holding exposure to the Swedish krona, which had slumped by around 6 per cent since the bid was announced.

The losses came in a year that saw global dealmakers strike US$5 trillion worth of transactions for the first time, boosting earnings for investment banks. Volumes rose across sectors and regions, fuelled by cheap financing and super-acquisitive private equity buyers. Barclays ranked sixth as an adviser on deals last year, data compiled by Bloomberg show.

The banks also lost out on deal fees. Barclays and Deutsche Bank were among the financial advisers to the buyers alongside Evercore, Jefferies Financial Group, JPMorgan Chase & Co, SEB AB and UBS Group, according to data compiled by Bloomberg. Morgan Stanley advised Sobi. BLOOMBERG