Disinvestment shock: Barclays to sell R120bn Absa, announcement on Tuesday

Two days after Nenegate, we reported that the UK’s largest retail bank Barclays Plc had decided to offload its R120bn South African subsidiary Absa. That marked a significant reversal in a strategy which has seen SA’s largest retail bank progressively change its image – with the Absa red and name progressively giving way to Barclays blue – including the listed company whose name was changed to Barclays Africa. But according to the Financial Times of London, the new Barclays management team has gone through the motions over the past three months and is set to confirm the biggest disinvestment in South Africa since the spate that hit the country during the mid 1980s. Sceptics are concerned that the Barclays sale will spark a similar exodus. – Alec Hogg

By Martin Arnold and Patrick Jenkins

Barclays’ new chief executive is planning to announce on Tuesday that the British bank has decided to exit its African operations in a bold move to refocus the bank on its core UK and US markets.

A man walks past a branch of South Africa's biggest retail bank, Absa, in Cape Town. REUTERS/Mike Hutchings
A man walks past a branch of South Africa’s biggest retail bank, Absa, in Cape Town. Its UK parent Barclays Plc is set to announce on Tuesday that it is selling the R122bn subsidiary. REUTERS/Mike Hutchings

After a review of the African business led by Jes Staley, the bank’s board decided last week that in principle it made strategic sense to get out of the continent, according to people familiar with the matter.

The board has delegated authority to a subcommittee to examine the practicalities of how and when to sell Barclays Africa, one of its four main lines of business. By delegating authority it avoided having to disclose the decision immediately.

Read also: PIC keen on raising stake in Barclays Africa, coy on how much

This means that a sale of the bank’s 62.3 per cent stake in its Johannesburg-listed subsidiary will depend on numerous factors, including market conditions and the response of regulators.

The stake is worth R78bn (£3.5bn) at current market prices. Investment bankers say there are no obvious strategic buyers for the African business. The value of the stake has fallen in recent months, making an exit less attractive. Barclays declined to comment.

Several people who have met Mr Staley recently say he recognises Africa is one of Barclays’ few genuine growth areas, but he believes it is becoming a costly distraction as the South African rand devalues and the country’s economy slows down.

Read also: There’s just no way to put any possible positive spin on Barclays wanting to dump Absa

The bank also sees extra risks of corruption and misconduct in Africa. “Barclays does not own all of the equity, but it owns 100 per cent of the risk if something goes wrong,” said one of the people.

The decision to pull out of Africa will reinforce Mr Staley’s strategy of refocusing Barclays on its core British and American markets. Last month, he announced plans to further trim the investment bank, cutting up to 1,200 staff by closing smaller operations in Asia, Brazil, Europe and Russia.

One benefit of selling out of Africa is that it could address worries about Barclays’ capital. Analysts at Jefferies estimate that a sale could add as much as 0.8 percentage points toBarclays’ core capital ratio – taking it much closer to its 12 per cent target.

“While we expect the process of selling Barclays Africa Group to prove more difficult than the market currently expects . . . a wholesale exit from Africa would seem to make sense,”Joseph Dickerson, banks analyst at Jefferies, said in a note this month.

Barclays has had operations in parts of Africa for almost a century. Barclays Africa Group Limited, which includes the South African branch network Absa, is one of the largest banks on the continent, with a R991bn balance sheet. It has 45,000 employees – a third of all Barclays staff – and 1,267 branches across 12 countries, including Kenya, Ghana, Tanzania,Mozambique, and Uganda.

But the recent contribution of the African business to the overall group’s profits has been hit by the devaluation of the South African rand against the British pound. The African unit’s return on equity was 9.3 per cent last year – below the bank’s target of 11 per cent.

The rand crashed to all-time lows against leading currencies late last year. While it partly recovered after South African president Jacob Zuma reversed his controversial appointment of a relatively unknown MP as finance minister, it is still down by a quarter against the pound over the past year.

South Africa’s black economic-empowerment rules mean that Barclays’ stake in its African business is capped at 75 per cent. The UK bank has a minority of board seats.

Talks over a deal to sell Barclays’ Egyptian and Zimbabwean operations to its South African subsidiary broke down this month, and the bank is now likely to also sell its operations in those two countries.

(c) 2016 The Financial Times Ltd.

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  • SA SOVIET

    Barclays brought nothing indeed they in fact stripped South Africans IT jobs to benefit India

  • SA SOVIET

    The Guptas are after quick cash, they won’t hold stock for long

  • SA SOVIET

    My wish too

  • Ben Tonkin

    Unfortunately, like any business banks are there to make profits for shareholders. If they can longer do this in a country, for whatever reason, they pull out. Right now would you put your money into a wholly-owned SA bank? If you want to make a small fortune, start with a big one. Not negative, realistic as things are.

  • James

    I think China has other worries right now.

    “China expects to lay off 1.8 million workers in the coal and steel sectors”

  • Ben Tonkin

    ABSA has 11 million customers. That is double its nearest rival. They didn’t achieve this by providing poor service, inadequate products or by making bad business decisions. As for for going “back to South Africans”, have you any idea how many South African companies exist with, or because of, foreign investment. What about The Standard Bank of South Africa. Chinese shareholding. What about your toothpaste – Colgate. USA? And so it goes, across thousands of products. Take foreign investment out of SA and a skeleton will remain.

  • tish007

    Second Look at the Federal Reserve – Edward Griffin

  • tish007

    Notwithstanding Zuma’s incompetence, if you have watched ‘the big short’ on circuit, and read or youtubed Edwin Griffin’s ‘the Federal Reserve Bank’ you will know what cons these bankers are. Seriously, they need to take the knocks they deserve.

  • Perplexed

    Maria Ramos is CEO of ABSA. She is Trevor Manual’s wife/life partner.

  • dawith

    Was die verkarmptes maar tog nie reg gewees nie?
    Moenie kla jou stem was JA

  • Ben Tonkin

    It’s the SA law Leo, not an ABSA requirement. ABSA would be very happy if they didn’t have these hassles. All banks, life insurers and other financial institutions have to obtain the same (FICA, not RICA) information from clients. Possibly more than once too. Fraud, corruption and money laundering in SA made it necessary.

  • robmanzoni

    Not to worry – the Guptas and the Chinese (perhaps even the Russians) will be vying for their piece of the bank.

  • Tefo Matlabe

    Sorry sir who is your source in this matter?

  • Wayne Burger

    All because the ANC won’t replace one corrupted President. Shame Anc yor history will be told and not wiped out like you are trying to do with South African history.

  • peterq

    Some big American hotel group is also looking at getting out.

  • peterq

    Why should we care that the ANC have a corrupt deal with some Chinese guy making ANC/Cosatu clothes so they destroy SA jobs and rather create Chinese jobs?

  • peterq

    They can either sell at a loss now, or a much bigger loss later on. With this news it is all one way down.

  • Macafrican

    Capitec is a big micro lender with a retail banking pretence. Before you try and argue, study their AFS and look up their loan interest rates and T&C.

  • Rooinek

    +1

  • Spike

    What Barclays did bring to ABSA was work ethic and management, unfortunately even that was not enough to curtail the mismanagement and corruption of the present day situation that has been allowed to manifest itself in South Africa. Vote DA for real change and investor confidance.

  • Mo Haarhoff

    Will it join Standard with Chinese majority shareholding, or will the Gupta’s throw in their lot?

  • kuli

    Honestly speaking what value did Barclays bring to ABSA? It’s not like their profit sky rocketted or their employment increased. In fact they shipped IT jobs to India. It was just a matter of ownerships, hopefully it goes back to South Africans who have a vested interest in this country not foreign porfolio that flows out when there’s a cloud cover. Why should we care about foreigners owning our crown jewels that they had no hand in building. AT least future profits will stay here. Besides all BGA was their star paying dividends post 2008.

  • EnjoyTheDecline

    Smart move on their part. Clearly, Barclays doesn’t believe that the rand will come right any time soon, if ever. The falling rand aside, the Expropriation Act is a major risk for an institution in the mortgage bond business – your “security” isn’t actually secure. However, the cadres will be smiling, because the sell-off means buying opportunities for well-connected BEE beneficiaries.

  • Russel Kantor

    Sorry mate all banks have shit service and high bank charges

  • Lessy Lester

    When De Beers was sold, it should have been obvious. Africa will never be able to compete with the Western world.

  • Offshore

    The only shock is that south Africans are shocked.

  • Greg Taylor

    This is a very significant but sadly inevitable and deserved vote of no confidence regarding our future economic prospects by what was a major overseas investor. Thank you Mr Zuma, your ANC government acolytes and the communists among them that have been and continue to be so effective in dismantling what still remains of our economy. Viva our continued self destruction – viva!

  • Sakki333

    Now bank charges will most probably stolen at double the current rate. Absa – worst bank with the most ridiculously high bank charges for absolute shit service