BlackRock faces challenge of keeping BGI assets

By Joseph A. Giannone - Analysis

NEW YORK (Reuters) - With the $13.5 billion Barclays Global Investors takeover, BlackRock Inc Chief Lawrence Fink will soon manage more money than the U.S. Federal Reserve. Now he has to hang on to all those assets.

As was widely expected, BlackRock late on Thursday announced a deal to create the world's largest money manager with 9,000 employees and $2.7 trillion in assets: more than the U.S. municipal bond market, bigger than the GDP of France and twice the assets of its nearest rival, State Street Corp.

Yet the history of asset management mergers is filled with disappointments, as star money managers and clients walk out the door and two plus two often equals three.

"When you consider the execution risks, the challenges of integration and the chance they don't retain 100 percent of Barclays' assets, there are risks," said analyst Matthew Albrecht of S&P Equity Research.

"Considering their lofty multiple, there isn't much upside and a lot of downside," said Albrecht, who slapped a "sell" rating on BlackRock in April.

Heading into the deal, BlackRock was trading at 30 times estimated 2009 earnings after climbing 24 percent since speculation of a deal surfaced last month. The stock soared 87 percent since U.S. stocks bottomed out in early March, and now trades about 22 times pro forma 2010 earnings.

So even as analysts applauded the powerhouse created by the deal, BlackRock stock fell 4 percent. Barclays Plc, parent of BGI, fell 4 percent in London.

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