Those who don’t learn from history are doomed to repeat it. And while the circumstances are different, one Barclays shareholder is concerned the bank is pulling out of Africa at ‘the wrong time’. Django Davidson says in Sterling valuation terms, Barclays Africa is close to all-time lows. And the long-term outlook for financial services in Africa is more attractive than in Britain and the United States. Davidson is also concerned that former boss Bob Diamond, is one of the leading suitors chasing the group’s African assets, which should have shareholders on high alert. This is some interesting analysis that may get Barclays shareholders ears up, especially as the group’s share price has flat-lined over the past 20 years against an 85 percent appreciation for the FTSE All-Share. Makes one wonder. – Stuart Lowman
By Django Davidson*
As recently as 1980, Barclays was the western world’s foremost retail bank. With more branches than any competitor, the slogan “If there isn’t a Barclays, you’re probably lost” spoke to a century of global banking. Steeped in Quaker roots and stewarded throughout the 20th century by family insiders, the Barclays brand became one of the most trusted in retail banking.
How things have changed. During the past 30 years the bank’s restless soul has flip-flopped in and out of investment banking and bought and sold global retail businesses with clockwork regularity.
The latest strategy update sees the painful, stop-start transformation from highly profitable retail caterpillar to swashbuckling, capital-destroying investment banking butterfly almost complete.
The board’s backing of new chief executive Jes Staley’s decision to sell its African retail businesses to focus on “transatlantic investment banking” will perhaps require Martin Vander Weyer to add a final chapter to his Falling Eagle history of Barclays’ decline.
As long-term shareholders, we are left confused and frustrated. Take three countries where Barclays has a market leading presence, Tanzania, Uganda and Zambia. These nations have on average 15 percent private debt-to-GDP ratios, and offer a multi-decade retail banking “runway”, the like of which no Quaker banker would have turned down.
While South Africa has a relatively indebted consumer sector, the long-term outlook for simple retail credit growth, funded by the growing customer deposits of newly middle-class Africans, is demonstrably more attractive than in Britain and the US, where private debt-to-GDP stands at nearly 450 per cent and 250 per cent respectively.
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This is not all about growth, though. Barclays Africa is already more profitable than post-financial crisis investment banking. Last year, hardly a boom time for commodity-exposed southern Africa, Barclays Africa generated a return on equity of 17 per cent, three times that of the investment bank.
Even using the adjusted returns presented by Barclays in its 2015 results it still generated twice the return on equity of the investment bank.
To quote the late Yogi Berra: “It’s like déjà vu all over again”. After pressure to exit from operations in apartheid South Africa, Barclays sold its historic South African business in 1986, recycling the proceeds into a catastrophic (for shareholders, not employees) investment banking venture with BZW. Indeed, the last time Barclays shares rose above 400p (they were £1.621⁄4p on Friday) was on the announcement of the sale of BZW (to CSFB) in 1998.
History is rhyming and the flip-flops are back, albeit with potentially more destructive consequences.
Having paid £2.6 billion for Absa (Barclays Africa) a decade ago when the rand was at 11 to the pound, Barclays is now looking to reduce its stake with the rand at 23 to the pound. In sterling terms, there could not be a worse time to sell. In valuation terms, Barclays Africa is close to all-time lows.
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It should come as no surprise that one of the mooted buyers is Barclays’ former chief executive Bob Diamond. Shareholders should be on alert when, acting as prospective owner and not employee, Mr Diamond is looking to deploy his own money into sub-Saharan African banking at the point that Barclays is looking to sell.
For the past 20 years the strategy has delivered broadly zero share price appreciation for Barclays against 85 per cent for the FTSE All-Share. This should concern us all. Barclays is a major component of the UK index and by proxy our pension savings.
- Django Davidson is founding partner of Hosking Partners, a global long only asset management company founded by Jeremy Hosking after he retired from Marathon Asset Management. Davidson’s a portfolio manager with a global remit and a background in financials. Hosking has $4bn in assets under management.
