May 15 (Bloomberg) -- Barclays Plc, the U.K.’s third- biggest bank, is in talks to sell its asset management unit to potential buyers, including BlackRock Inc. and Bank of New York Mellon Corp., according to people with knowledge of the matter.

Barclays rose 5.8 percent in London trading as analysts estimated the company would sell all of Barclays Global Investors for as much as $10 billion. That’s more than double the $4.4 billion Barclays would receive under an agreement to sell BGI’s iShares unit to CVC Capital Partners Ltd. That deal gave Barclays until June 18 to look for better offers.

Barclays has shunned government funds, instead boosting capital by selling shares and assets after $18.6 billion of credit losses and writedowns during the global financial crisis. The bank’s capital adequacy ratios still lag behind those of Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, which accepted state control in return for taxpayer funds.

“Without doubt they are doing this to bolster capital ratios and convince people they don’t need more equity,” said Richard Buxton, head of U.K. equities at London-based Schroders Plc, which manages the equivalent of $156 billion of assets, including Barclays stock. “But you end up with a less diversified business.”

Barclays said today it had received “unsolicited interest” in BGI, as well as inquiries about iShares, since the original deal was announced. There is “no certainty” the discussions will result in a deal, the London-based company said in a statement, without naming the potential bidders.

‘Difficult to Refuse’

It’s “an opportunity with a price that is very difficult to refuse,” said Neil Smith, an analyst at WestLB AG in Dusseldorf who has a “neutral” rating on the stock. “It wouldn’t make them weaker if they found another business to replace it.”

New York-based BlackRock and BNY Mellon declined to comment. The Financial Times earlier reported the talks with BlackRock.

BlackRock Chief Executive Officer Laurence Fink said on an April 21 conference call that he’d be interested in expanding the firm’s position in retail mutual funds through acquisitions. Fink said BlackRock had been approached by several companies and was evaluating opportunities.

BlackRock is the biggest publicly traded U.S. asset manager and oversees $1.3 trillion, mostly for institutions. BNY Mellon is the world’s largest custody bank and manages $881 billion of assets for clients through mutual funds and institutional accounts.

Easing Capital Needs

BGI’s pretax profit fell 19 percent to $595 million last year as financial markets plunged. Assets under management dropped 28 percent to $1.5 trillion last year, compared with an average decline of 31 percent among U.S. money managers, according to a survey by Greenwich Associates in Greenwich, Connecticut.

The business is worth the equivalent of $9.1 billion, or 0.54 percent of assets under management, analysts at Societe Generale SA said in a March 27 report. Simon Willis, an analyst at NCB Group in London who has a “sell” rating on Barclays, valued BGI at more than $10 billion.

“It’s the right thing for them to do as it may obviate the need for them to raise further capital this year,” Willis said. “Strategically, it is not an attractive decision” because the bank sells structured products through BGI.

Biggest Ever

A price of $10 billion would make the sale the biggest ever in the fund-management industry, according to data compiled by Bloomberg. It would exceed BlackRock’s $8.5 billion takeover of Merrill Lynch & Co.’s investment management business in 2006.

Barclays agreed to sell iShares to CVC Capital, a London- based buyout firm, on April 9. The bank must pay CVC a $175 million break fee if it terminates the deal.

Private-equity firms BC Partners Ltd. and Hellman & Friedman LLC are considering rival bids for the iShares unit, the Financial Times said. Vanguard Group Inc., the largest U.S. manager of stock and bond mutual funds, is also a possible bidder, the Wall Street Journal reported, citing a person familiar with the matter.

Barclays rose 14.75 pence to 267.75 pence, after advancing as much as 10.1 percent to 278.5 pence. The stock has gained 75 percent this year, making it the best performer in the five- member FTSE 350 Banks Index.

Barclays President BGI chief Robert Diamond said in an April 15 interview that he was “pleased” with the iShares sale. Asked if the firm may sell BGI, Diamond said the “core institutional business is a very important part of our investment-banking and investment-management franchise.”

Diamond Stake

Barclays employees who own shares in BGI may receive a bigger payout from a sale of the entire unit than iShares alone.

Employees own about 4.5 percent of the unit, with options to increase their holdings to 10.3 percent, the bank said in a statement last month. Diamond owns 100,000 shares of BGI and has the option to buy an additional 200,000. Barclays estimated he could receive a cash dividend of $6.9 million as a result of the iShares deal.

Barclays said last week that bad loans will increase this year after rising 79 percent to 2.3 billion pounds ($3.5 billion) in the first quarter. First-quarter net income advanced 12 percent to 826 million pounds, lifted by investment banking and its acquisition of Lehman Brothers Holdings Inc.’s North American securities unit.

The bank is expanding its European stock underwriting and merger advisory businesses to match its position in the U.S., Barclays Capital President Jerry del Missier said this week.

“There is still concern out there about the balance sheet and its capital position,” said Simon Maughan at MF Global Securities Ltd. who raised his rating on the stock to “buy” from “neutral” today. “For the next couple of years Barclays’ prospects are defined by the Lehman deal and how quickly and how far they can take that franchise.”

To contact the reporters on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net

Last Updated: May 15, 2009 14:06 EDT