cording to the Financial Times, Barclays’ new Chief Executive, Jes Staley, is planning to announce the exit of the British bank from Africa on Tuesday. The board has decided that it is in the best interest of the company to divest from the continent in order to refocus on its core UK and US market. A subcommittee has already been delegated to examine how and when to sell Barclays Africa. This means that several factors, such as market conditions and response of regulators, would be considered before Barclays PLC sells its 62.3 percent stake in Barclays Africa worth R78bn ($4.8bn). There are also speculations that Barclays is leaving Africa because of the current economic situation in South Africa, which includes the weakening Rand, fall in the prices of commodities and political instability. The timing of selling the stake is unclear but, more details will emerge when the company announces its 2015 results on Tuesday.
South Africa at a glance
South Africa is currently going through a tough time and this is mainly because of the fall in prices of commodities caused by China’s economic slowdown. This has also led to the weakening of the national currency and unemployment levels in the country are on the rise due to the downsizing of staff in many companies. Thousands of jobs have been lost in the agriculture, construction and mining sectors. Just last week, it was reported that the JD Group, a furniture retailer, plans to lay off about 4000 jobs and this is among other job cuts occurring in the country.
Barclays operation in Africa
In 2005, Barclays bought a majority stake in South African bank, Amalgamated Banks of South Africa (Absa), building on a steady stream of acquisitions. Absa was consolidated with several of its African businesses across the continent. Former CEOs of the bank, including Bob Diamond and Antony Jenkins, were hooked on Barclays’ unique African footprint. Diamond, who resigned in 2012, outlined a “One Bank in Africa” strategy, pointing to the huge population growth in the region and its expanding middle class. He has co-founded his own bank, Atlas Mara, which is now expanding across sub-Saharan Africa at an enviable rate.
This announcement is a symbolic reversal for Barclays, which has been operating in Africa for almost a century, making it one of the leading Western banks in Africa, along with Citigroup Inc. and Standard Chartered PLC. It is one of Africa’s largest banks employing about 44,000 people and running 1,267 branches across the continent and it is currently in 14 African countries including Nigeria, Egypt, Namibia, Mozambique and Kenya. According to its 2014 report, the company’s pre-tax profit slipped 7.7 percent in the third quarter, compared with increases at the credit-card and personal and corporate-banking divisions. The region reported a return on equity of 9.7 percent in the third quarter as well, which is below the bank’s target of at least 11 percent. Barclays’ African business had 36 billion pounds ($54 billion) worth of assets on a risk-adjusted basis and made a profit of 791 million pounds in the first nine months reported.
Who are the possible buyers of Barclays?
This announcement begs the question of who could possibly buy into Barclays Africa. This is because sub-Saharan Africa recorded a drop in its GDP from 4.5 percent in 2014 to 3.5 percent in 2015 and growth is not likely to increase significantly this year. Investors are also still wary about entering Africa due to political instability in many countries on the continent. As it stands, the probable company that could buy Barclays Africa is the Public Invest Corporation (PIC), which is already the second largest shareholder in ABSA. However, the limitation of this purchase would be a major share in an international bank, which operates in several countries which includes Nigeria and Kenya. According to experts, the value of the stake has also fallen in recent months, making the option of steadily selling the stake to institutional investors less attractive.
February 28, 2016