By Alec Hogg
Barclays Plc is poised to lose around £400m of the £3.8bn capital it invested over the past decade into South Africa’s leading retail bank, Absa.
Although the SA operation’s profit performance in local currency terms has been adequate, a continued slide in the value of the Rand means that in the currency that matters for the UK group. Pound Sterling, the value of the injected capital has fallen by 12%.
Just over a decade ago, in May 2005, Barclays Plc invested £2.6bn to acquire 56.4% of the Absa Group. This shareholding was raised to 62.3% in July 2013 when it accepted Absa shares in return for injecting £1.2bn worth of other African banking assets into the SA group, which was then renamed Barclays Africa.
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This morning the Financial Times of London reported that the UK group is set to announce the divestment of its stake in Barclays Africa on Tuesday when it reports its 2015 financial results. This has been on the cards since the financial shock created by Nenegate on December 9 last year.
At Friday’s closing level of the JSE-listed operation’s shares, the stake which Barclays owns translates into a recoupment of £3.4bn (R76bn) on the £3.8bn it paid for them over the past decade. Although Barclays has received dividends during the period when it controlled Absa, those inflows would not have covered the costs incurred in servicing the invested capital.
Major reason for the awful result of Barclays’s African adventure is the decline in the value of the South African Rand.
Its initial 2005 investment was made at R12 to the Pound. The 2013 injection was done at R15. The exchange rate’s sharp decline in the past three months means it now costs R22.50 for a pound.
Barclays has been forced to re-examine all of its global operations in the wake of stricter banking regulations introduced worldwide in the wake of the Global Financial Crisis.
Although Absa was previously regarded as a jewel in the global banking group’s crown – it employs 33 000 people, a quarter of the Barclays total – tougher local economic conditions and a sliding currency means the numbers no longer make sense for the multinational.
There are no obvious strategic buyers for Barclays Africa/ ABSA. Bob Diamond maybe? https://t.co/PDWK1fTftu
— Michael Jordaan (@MichaelJordaan) February 27, 2016
Given that they would face the same return on capital issues, it is unlikely that any other western banking group will be bidding for the Barclays stake. A more likely suitor is one of the State-owned Chinese banks, which operate under different capital rules.
China’s biggest bank, ICBC, already owns 20% of Standard Bank. Barclays Africa’s head of retail and business banking, Craig Bond, was previously with Standard and based in Beijing where he managed the relationship between ICBC and is South African associate.
Insiders at Absa say Bond has been spending a lot of time in China of late, presumably tapping into his contact base to sound out potential buyers.
Barclays CEO has absolutely no love for Africa.
Reportedly says we don't own 100% of Africa business but owns 100% of the risk of Africa— Sure Kamhunga (@sure_kamhunga) February 27, 2016
Were there to be no interest from China, the next most likely purchaser of the Barclays stake is South Africa’s Public Investment Commissioner, which could comfortably afford the investment. The PIC manages public sector retirement funds that were worth R1.6 trillion at the end of March 2015.
A further alternative would be a merger between Barclays Africa and one of the other Big Four South African banks – FirstRand, Standard Bank or Nedbank. That would probably only be the final resort, however, as that kind of consolidation is unlikely enthral the country’s Competitions authorities.
