JOHANNESBURG – Customers of Barclays Africa needn’t worry about the safety of their deposits following news that Barclays Plc will sell down its 62.3% interest in the African banking group to a non-controlling stake over the next two to three years. But while Barclays Africa is in safe hands, the message that Plc’s decision sends is not a positive one for investment on the continent.
Making the long anticipated announcement on Tuesday, Barclays Plc cited regulatory pressures associated with being a globally systemically important financial institution (GSIFI) as its primary reason for selling its stake in Barclays Africa. This follows similar decisions to reduce stakes in businesses in Asia, Russia and Brazil.
“Given the UK’s more onerous regulatory capital requirements for subsidiary investments, it makes sense that Barclays would want to reduce its African exposure,” said Chris Steward, head of financials at Investec Asset Management.
Having spent the lion’s share of profits over the last three years on taxes, fines and regulation, Barclays Plc has insufficient capital in an environment where regulators are requiring them to keep more of it, according to Jan Meintjes, portfolio manager at Denker Capital.
“But if this was a fantastic investment opportunity for them, it would’ve made that decision a lot harder. The fact that there is uncertainty in the country and volatility in the exchange rate, makes the decision a lot easier, which is sad to see,” Meintjes said.
In its results announcement for the 12 months to December, Barclays Plc CEO, Jes Staley, highlighted a renewed focus on developed markets. “At the heart of Barclays’ strategy is to build on our strength as a transatlantic consumer, corporate and investment bank anchored in the two financial centres of the world, London and New York,” he said.
Barclays Africa CEO, Maria Ramos told journalists on Tuesday, “Our strategy to build a pan-African business is not changing because Barclays is making a different decision on Barclays Africa Group”.
“We will now engage with Plc and regulators to find the most appropriate and satisfactory outcome for all stakeholders. I don’t know what that is going to look like,” Ramos said.
She said that decisions around what to do with the Barclays brand, which the group’s operations outside of South Africa have adopted, would form part of these engagements.
Ramos highlighted that the group’s banking operations remain firmly under the control of Barclays Africa Group Limited (BAGL), which was formed when Absa Group Limited bought Barclays’s interests in Africa for R18.3 billion and subsequently rebranded.
Source: Barclays Africa
Absa, meanwhile, sent SMSes to its customers on Tuesday afternoon assuring them that they would not be impacted in any way by the sale. “Absa is here to stay,” the SMS said.
‘We’ve got to lift our game’
While that may be true, David Shapiro, deputy chairman at Sasfin Securities, has warned that the sale by Barclays Plc sends the wrong message to foreign investors. He highlighted issues around corruption, corporate governance and the productivity of labour, which may have prompted Barclays Plc to elect to deploy capital in countries where it is not facing these issues.
“That’s the harsh reality. That’s where we have to say, ‘hold on a sec, we’re not that cute anymore, we’ve got to lift our game’,” he told Moneyweb.
The weakness of the rand is another major deterrent to foreign investors, said Shapiro, who joined the stock market in 1972 after qualifying as a chartered accountant. “The rand has lost some 9% of its value per annum over the last 20 years. That means as a foreigner you’re losing purchasing power and have to make sure that whatever returns you get compensate for that,” he explained, adding that most foreigners would want a “20% plus” return on equity.
“Barclays Africa continues to deliver a solid return on equity, but the contribution it makes to the parent group is significantly diluted after additional costs, capital overlays and once it is converted into pounds,” noted Investec’s Steward.
“Barclays intends to conduct an orderly reduction in its stake over the next two to three years, and as such we are not concerned that it will create a big overhang in the local market,” he added.
Barclays Africa reported headline earnings growth of 10% to R14.3 billion, for the 12 months to December 2015. Return on equity improved to 17%, from 16.7% a year earlier.
The International Monetary Fund (IMF) predicts that sub-Saharan Africa will grow at 4% in 2016, rising to 4.7% in 2017. This is well ahead of advanced economies, which are expected to grow at 2.1% for the next two years.