By John Spence

BOSTON (Dow Jones) -- Barclays set the exchange-traded fund business abuzz Monday as the British bank confirmed a report it has been shopping around its hugely successful iShares ETF unit.

The news surprised many analysts because Barclays Global Investors is by far the largest provider of ETFs, both in the U.S. and worldwide. At the end of January, the iShares global lineup of ETFs included more than 360 funds with nearly $300 billion in total assets, representing about a 45% market share.

Potential bidders for Barclays' ETF business could include banks, broker-dealers and asset managers, industry observers said.

In a short statement on the iShares unit, Barclays (BCS) said it's "held discussions with a number of potentially interest parties as part of its practice of regularly reviewing the group's portfolio of business." No decision regarding the disposal of any business has been taken by the company's board, Barclays said.

It's not clear whether Barclays has explored selling the entire iShares subsidiary or would consider disposing of a partial stake. A company spokeswoman declined to comment beyond the prepared statement.

The stake-sale discussions came as Barclays confirmed it's also in talks with the British Treasury and the Financial Services Authority about participating in the government's asset-protection plan.

The Barclays statement followed a Wall Street Journal report that the troubled bank has asked J.P. Morgan Cazenove to shop the iShares unit as it tries to repair its damaged balance sheet. The report, which cited a person familiar with the matter, said the business could fetch as much as $5.6 billion.

Left with few capital-raising options, Barclays may be mulling a sale of one of its fastest-growing and successful businesses.

"Barclays is pretty desperate to avoid a government stake, so it might cut off its nose to spite its face," said Erin Davis, a senior equity analyst at Morningstar Inc. who covers the company.

The iShares brand name is very strong in ETFs, so to see it potentially up for sale is "shocking" and "absolutely a game-changer," said Matt Hougan, editor at IndexUniverse.com, a site that follows index funds and ETFs.

Handicapping the potential suitors

"It'll be a tough sale, though. It's a big-ticket item, and the number of banks with cash burning a hole in their pocket is limited," Hougan noted. "But you can bet there will be a lot of interest. For the right buyer, it'll be hugely attractive."

Large brokers such as Goldman Sachs Group , Morgan Stanley (MS) and J.P. Morgan Chase & Co. (JPM) are seen as among the potential suitors. Morgan Stanley declined to comment, while Goldman Sachs and J.P. Morgan didn't immediately return calls Monday.

"A broker-dealer buying iShares is the most likely scenario I see, if it happens," said Matthew McCall, president of Penn Financial Group, an investment adviser that specializes in portfolios of ETFs.

A deal might also make sense for online broker Charles Schwab Corp. (SCHW), or a large asset manager such as Vanguard Group or Pimco, he said.

Pimco and Schwab have registered ETFs with regulators, signaling their intention to join the rapidly expanding business.

Barclays ranks as the biggest ETF manager, followed by State Street Corp. (STT) and Vanguard.