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China buys stake in Barclays in ABN twist

The heated battle for Dutch bank ABN Amro has taken an unexpected twist this morning after Barclays raised its offer thanks to a €13.4 billion ($18.4 billion) investment from the governments of China and Singapore.

In a deal that will see the China Development Bank become a major shareholder in Barclays, Barclays has raised its offer to €67.5 billion ($93.1 billion), with €24.8 billion ($34.2 billion) coming in cash. Temasek, the investment arm of the Singaporean government, has agreed to invest €1.4 billion and may invest a further €2.2 billion ($3 billion).

Barclays CEO John Varley has been under pressure to lift his offer to eclipse the €71 billion offered by at trio of banks led by Royal Bank of Scotland. Last week the consortium tabled a €71 billion ($97.9 billion) offer for ABN Amro. If Barclays fails to buy ABN the newly formed Chinese investment authority and Temasek would take smaller stakes in the British bank.

The Chinese state has $1.2 trillion of foreign exchange reserves to invest, much of which has recently been placed in US Treasuries or government bonds. But China recently signaled it would be taking a more imaginative and aggressive approach to how it invests hundreds of millions of dollars, including buying significant holding in overseas companies. The deal with Barclays - which is one of the most bold investments by the Chinese to date - was arranged by the leading US private equity house, Blackstone, which recently sold a £1.5 billion ($3 billion) stake in itself to the Chinese state. After four months of twists, turns and legal hi-jinks, the bid battle for ABN Amro has finally entered the home straight with a key court ruling and an increased offer from RBS and its consortium.

Institutional shareholders with significant holdings in both Barclays and Royal Bank of Scotland - including Standard Life and Scottish Widows - now “hold the key” to the bid battle for ABN and will be the principal kingmakers. The RBS consortium includes Fortis and Santander, which owns Abbey in the UK. Varley risks alienating some of his major shareholders by raising his bid. (