Latest developments at Barclays

Barclays Africa: great opportunity for local consortiums – Simon Brown – JustOneLap.

SIKI MGABADELI: Barclays Africa remains optimistic following the two setbacks. Tumisang Ndlovu reports on the latest developments.

TUMISANG NDLOVU: Barclays Africa says it remains strong after a Fitch downgrade and a sell-down by Barclays Plc. Deputy CEO David Hodnett says that decision was based mainly on global regulatory matters.

DAVID HODNETT: One of the things that didn’t seem to be well understand by the market is that when Barclays Africa was created in 2013, we brought all the Africa operations that we wanted below our legal entity listed on the Johannesburg Stock Exchange. So what we’ve tried to make very clear is the only decision that Plc could make was its shareholding in Barclays Africa Group Ltd. The other decisions on Africa are completely in the control of our listed entity on the Johannesburg Stock Exchange, which we made very clear is a very strong bank with strong capital and its own funding, and independently regulated by the South African Reserve Bank.

TUMISANG NDLOVU: Sasfin’s David Shapiro agrees.

DAVID SHAPIRO: What he says is we can get double-digit gains in our transatlantic operations. They have to conserve their capital, because that is the basis on which they can grow the business. So Africa hasn’t been giving the kind of returns. And, as he pointed out, he said the regulators there mark them for a 100% risk where they’ve only got a 62% investment in the company. But, from a risk point of view, the risks are far greater than the profits they can get out of it. And also returns – you can’t ignore the depreciation of the rand on the returns that they’ve been getting.

TUMISANG NDLOVU: Meanwhile, Fitch says its decision to downgrade is based on limited probability of support from Barclays in the transition phase up to the point of sale.

JustOneLap founder Simon Brown shares his views:

SIMON BROWN: If we look at Barclays Plc and Barclays Group Africa, Barclays Group Africa is the better investment. They’ve got better metrics, better ratios, better dividends, better profits – almost better anything.

But Barclays Plc in London has got some serious challenges, They’ve got some bad investments, they’ve got some fines, regulatory issues, they’ve had to pay, and maybe they are saying: Which is going to be the easy one to sell? There are also accounting issues. Because they own more that 50% they have to what they call consolidate account it, which means Barclays Plc has to take 100% of Absa risk onto their balance sheet.

TUMISANG NDLOVU: Brown also says this poses a great opportunity for local consortiums.

SIMON BROWN: I think buyers are a lot easier to find. The Plc might step up to it. I can’t help thinking that perhaps there is an opportunity here for a black consortium coming together and taking not a majority stake, just 14%-odd, which would make them the second-biggest shareholder. But it would be significant. It would also be deeply ironic, of course, if an Afrikaans bank becomes a proper African bank.

TUMISANG NDLOVU: Barclays Africa is now on par with the ratings of other major African banks following the Fitch downgrade.

Tumisang Ndlovu reporting for Moneyweb.

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