In a move that could break an almost 100-year history with the world’s second-largest and second-most-populous continent, Barclays plc could consider selling some or all of its banking operations in Africa, according to a report in the Financial Times this week.
American Jes Staley succeeds Antony Jenkins as Barclays’ chief executive
The bank’s newly appointed chief executive, Jes Staley, is reportedly looking at how its large Africa business fits strategically with the rest of the group.
Mr Staley’s review comes after investor confidence in South Africa was shaken by President Jacob Zuma’s decision to change his finance minister three times in less than a week at a time when the economy is under severe stress.
The rand crashed to all-time lows against leading currencies last week. While it partly recovered this week after Mr Zuma reversed his appointment of a relatively unknown MP as finance minister, it is still down 25 per cent against the pound over the past year.
The devaluation of the South African rand against the British pound has reduced the recent contribution of the African business to the overall banking group’s profits. For 2014, Barclay’s earned a return on equity of 9.3% from its African operations which was lower than its target of 11%.
Apart from operating Absa, a South African bank it bought in 2005, Barclays owns 62% of the Johannesburg stock exchange listed Barclays Africa Group Limited. The UK bank could exit Africa by either selling BAGL shares on the stock exchange or by considering bids from local rivals such as FirstRand, Standard Bank or Nedbank.
Barclays had planned to rebrand the Absa branch network under its own colours after increasing its stake in the Johannesburg-listed entity from 55.5 per cent by merging its African activities three years ago. But the rebranding was recently shelved.
Talks broke down recently over a deal for Barclays to sell its Egyptian and Zimbabwean operations to its South African-listed subsidiary, raising questions about the future of its operations in those two countries.
Duncan Mavin, Bloomberg Gadfly finance columnist and former Europe Financial Editor for The Wall Street Journal, thinks some peripheral African units could be in the firing line given Staley’s remit to turn Barclays into a leaner, more focused entity, but believes it is unlikely Barclays would exit its South African business, which accounts for the bulk of its business on the continent. Africa makes an important contribution to earnings. In the third quarter, African banking delivered a return on tangible equity of 13.3 percent, up slightly on the previous year, and above the 11.4 percent figure for the core bank, those operations Barclays plans to keep long-term. By contrast, the investment bank delivered a measly 5.5 percent return.
“Africa produces about 15 percent of the bank’s pretax profit. As recently as July, Chairman John McFarlane said he was ‘biased’ to make South Africa part of the bank’s ‘solid core’. That doesn’t sound like a retrenchment is on the cards,” wrote Mavin.
But the recent slump in commodity and oil prices coupled with the China slowdown has weighed down the African economy. The International Monetary Fund forecast sub-Saharan Africa to grow at 3.75% this year, marking the lowest levels since 2009.
And to add to its woes, South Africa’s credit rating was downgraded by Fitch in December to one notch above sub-investment grade apart from downgrading the country’s four big banks, including Absa. Standard & Poor’s too cut the country’s outlook to negative, increasing the risk that it could fall to junk status.
