|Maria Ramos – CEO of Absa and Barclays Africa|
The decision to deconsolidate and sell Barclays Africa has caused more worry about African banking and the commodities downturn. The planned break with the parent after more than 100 years came just days before Old Mutual, the British-South African insurer that owns 55% of Nedbank, announced it would break up and sell down to a minority its stake in South Africa’s fourth biggest bank.
It is an abrupt change for Barclays. Last year, former CEO Antony Jenkins told Euromoney he could increase capital allocation to Africa. Has Africa suddenly become so much less attractive? Not necessarily, according to new CEO Jes Staley, and certainly not, according to Maria Ramos – CEO for the last seven years of South Africa’s third-biggest lender, Absa, and since 2013 also CEO of Barclays Africa, which with Absa covers 12 African markets.
Ramos’ strategy – dubbed One Africa – will even be reinvigorated, it seems. Barclays Africa will use its “strong balance sheet to invest for growth,” Ramos told investors after the group exit was announced. Economic prospects in the continent are still “unbelievably good”, she said in a subsequent interview.
Freed of Barclays PLC’s frugal accounting of African risk-weighted assets, Jaap Meijer, analyst at Arqaam Capital, thinks Ramos could actually accelerate growth, perhaps reconsidering a purchase of Barclays’ Egyptian and Zimbabwean banks. The British group left these out of a 2013 deal with Ramos’ unit, and talks broke down again last year over price, but Staley still hopes to sell them.
Harry Botha at Avior Capital Markets agrees Ramos would be unwilling to abandon her strategy of investing in the rest of Africa, launched in 2014. He says her effort to win back clients and staff nabbed by competitors like Standard Bank is working, after the group had underinvested in what were established businesses that generated decent returns before 2013. The purchase of an insurer in Kenya last year, and applying for a licence in Nigeria, are parts of that story.
“Expansion by Barclays Africa in the rest of the continent, outside South Africa, is definitely still on the cards,” says Meijer.
South African banks have long outperformed their economy, and analysts think Absa – one of the worst hit by the local mortgage market after 2007 – has recently begun to catch up in its risk management and digital offering. Income at Barclays Africa rose 7% in rand in 2015. “It’s made a lot of progress in winning back old customers,” says Botha.
Barclays PLC is selling, said Staley, because it is “a disadvantaged owner” – a European lender of global systemic importance with a 62.3% stake, so it bears all the regulatory cost for less than two thirds of the profit. Old Mutual has similar reasons – in the form of Solvency II insurance rules – for selling its Nedbank stake.
Barclays Africa reported a 17% return on equity for 2015 on a standalone local-currency basis, which fell to 8.7% at group level. But the dilution would be even greater if the BBB- South African sovereign were downgraded (as feared) to junk, giving higher risk weightings on local assets, notes Meijer.
Barclays group CFO Tushar Morzaria said the sale could be to a strategic buyer, via private placement, sales in the secondary market, or a combination. Among potential strategic buyers, thoughts have turned to China and the Middle East. Chinese bank ICBC has a 20% stake in Standard Bank. Qatar National Bank is the biggest shareholder in the pan-African group Ecobank.
Buyers in China and the Gulf, however, are suffering from the wider emerging-market slowdown. Meanwhile, European banks will be unwilling to suffer the same regulatory profit dilution as Barclays. South Africa’s economic and policy mire makes an immediate merger with a domestic rival less likely, too. “It sounds like the most likely way is for a sell-down via a couple of private placements,” says Meijer.
Particularly tantalising is the prospect of a takeover by Atlas Mara, the London-listed African bank investment vehicle co-founded by Jenkins’ predecessor, Bob Diamond. Atlas Mara’s CEO John Vitalo was previously CEO of Absa Capital.
Yet Atlas Mara is much smaller than Barclays Africa, so could only buy between 5% and 10%, says Meijer. Moreover, Barclays Africa’s assets are mainly in South Africa, and Atlas Mara’s focus has been the rest of Africa. Ramos and the board of Barclays Africa (not to mention minorities) will furthermore resist a split between Absa and its business to the north. Absa only officially merged with the other Barclays African businesses in 2013.
“I have never been more convinced and prouder of what we have built in Barclays Africa,” Ramos said after the announcement. She added in the later interview with South Africa’s Sunday Times, while discussing the business outside South Africa: “The PLC has no say over these assets; we own them and we have no intention of selling any of them.”
Morzaria stressed Barclays is not selling to boost its capital in the short term. However, if Barclays PLC struggles to find a buyer to pay a control premium today, it may have to wait for a turn in sentiment, including on the rand, before it can sell even a small chunk. “They wouldn’t want to sell with the share price where it is today,” says Botha.