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Barclays would consider full Africa unit sale, Staley says

Staley doesn’t think Bob Diamond has ability to buy whole unit.
Barclays Plc CEO Jes Staley

Barclays Plc would consider an offer for its entire 62% stake in the African banking unit that it’s selling down to boost capital, chief executive officer Jes Staley said.

The firm is already receiving “a lot of interest” in the business a week after announcing its intention to cut its stake, Staley said in a Bloomberg Television interview with Erik Schatzker, without naming any potential bidders. The decision to sell down the firm’s stake in Barclays Africa Group Limited and focus on the UK and US markets was part of a broader strategy update Staley presented to investors on March 1.

“The idea of keeping some optionality in Africa is attractive, but for sure at some point there is a price where a strategic sale might make sense,” Staley said. “We have given ourselves time, two to three years, to get the sale done in a way that protects the franchise of Barclays in Africa, because it is a separate bank.”

In his first 100 days in the job, Staley has already left his mark on Barclays, stepping back from almost a century of operations in Africa, closing offices from Moscow to Brazil and cutting thousands more staff from the investment bank. The moves haven’t rallied the shares, which trade at about 50% less than its book value, driven in part by Staley’s decision to slash the dividend in half for the next two years.

The shares fell 4.93% to 159.90 pence at the close in London, paring the loss this year to 24%, the worst performance of any UK lender. Barclays Africa closed 1.09% lower at R136.50.

Barclays needs to cut its stake to roughly less than 20% to be able to deconsolidate the business and escape punitive capital charges. Staley said last week that the business is very attractive, but that the capital rules treat the stake as if Barclays owns 100% and thus reduce profitability.

Former Barclays CEO Bob Diamond, who now runs private equity firm Atlas Mara, has been reported to be among those interested in some or all of the business. Staley said he doesn’t believe Diamond has the “financial capability” to buy the entire unit.

Diamond resigned in 2012 amid public and government pressure after the bank was fined 290 million pounds ($411 million) for rigging Libor interest rates. He’s now building a banking franchise in sub-Saharan Africa through Atlas Mara and owns eight banks in seven countries.

The British firm bought South African bank Absa in 2005 and three years ago the Johannesburg-based unit acquired its parent’s operations in eight African nations, giving Barclays a presence in 12 countries on the continent with 12 million customers.

‘Won’t Rest’

Staley rebuffed calls from analysts and investors to exit or spin off Barclays’s under-performing investment bank, seen as the main culprit for the two-year slide in shares, calling such demands “shortsighted” earlier this month. The investment bank reported its first quarterly loss in at least two years last week and Staley has pledged to refocus the unit on London and New York, where it’s most profitable.

“Being one of the few European investment banks out there these days is a competitive advantage,” Staley said. “We have a long way to go, we have a lot to do with managing the costs at our investment bank, so we won’t rest until we deliver a return on equity that covers the cost of capital.”

Staley rejected the notion that UK regulations put Barclays at a significant disadvantage to its US peers, and said the market will adjust to allow investment banks to earn sufficient profits.

“I fundamentally believe UK regulators want to see a British bank within the leading investment banking group” and a “major player in the world’s capital markets,” the CEO said. “I don’t believe the world will feel safe if we are relying on global capital markets where the intermediaries, the investment banks, can’t raise capital or can’t earn a fair return to their shareholders.”

‘Existential Risk’

While markets are currently “challenging,” Staley said his firm had “a pretty good January and February.” US rivals Citigroup and JPMorgan Chase & Co have forecast drops of 15% or more in first-quarter trading revenue.

Staley vowed to change the bank’s culture after about 20 billion pounds of profit in the past five years have been wiped out by misconduct charges.

“Wall Street lost its way in the late 90s; I do believe that money became too much of a motivational factor,” Staley said. “We have a lot to atone for, we made a lot of mistakes, but make no doubt, the only existential risk to Barclays is if we get it wrong in the future on conduct.”

Negative Rates

A potential headwind for Barclays’ retail and commercial units, which produce the highest returns at the bank, is the prospect of a prolonged period of negative interest rates. Staley spoke before the European Central Bank announced further easing measures, including pushing its rate on cash parked overnight by banks to minus 0.4%.

“Negative interest rates are a reality today, but on a very limited scale,’’ Staley said. “We’re a long way to go from it being a very disruptive influence in the banking industry, but we’ve got to keep an eye on it.’’

© 2016 Bloomberg

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