Amicable Africa divorce costs Barclays R12.6bn

BARCLAYS Africa and parent Barclays plc announced they had settled the terms of their separation this week in what appears to be an amicable divorce, with the African business scoring funds to invest in technology and rebranding.

Barclays will pay £765-million (R12.6-billion using December rates) in separation expenses. Of that, £55-million will be used to cover expenses related to the separation. Half of this amount was received in December.

Furthermore, Barclays will pay £195-million for the termination of existing service level agreements between Barclays Africa and the parent company related to the rest of its operations in Africa — which Barclays Africa acquired from Barclays in 2013.

Maria Ramos, CEO of Barclays Africa, said the full separation details were not yet clear because the deal was still awaiting regulatory approval.

“There were a lot of services we were getting from Barclays. We paid for them as part of the deal we did with Barclays in the acquisition of the Barclays Africa businesses,” she said.

The biggest allocation — £515million — will be invested in technology, rebranding and other elements of the separation process.

The R8.6-billion allocated to rebranding and IT is intended to fund an extensive network of branches in South Africa and businesses throughout Africa.

The most complex part of the split is separating the companies’ banking systems.

“What we’re doing with Barclays now is looking at what we have to separate and the infrastructure that’s needed in order for Barclays Africa to ensure that it can maintain itself as a standalone entity,” Ramos said.

The rand’s performance over the next few years will have a significant effect on the value Barclays Africa will derive from this settlement. A stronger rand will mean less value; a weaker rand more money for the bank to play with. The cost of the infrastructure is likely to be denominated in foreign currency.

Adrian Cloete, a portfolio manager at PSG Wealth, said pricing the settlement amount in pounds worked in Barclays Africa’s favour.

“The fact that the £765-million contribution is set in pounds protects Barclays Africa against the potential risk of rising IT expenditure caused by a weakening the rand,” he said.

It is unlikely that Absa’s core banking system will be affected, but the systems that the group uses to facilitate market transactions, such as forex trading, will be a challenge to undo.

Wayne McCurrie, a portfolio manager at Ashburton, said: “This is a complete and utter minefield. Banks have very complicated and integrated systems. It’s all the foreign-exchange and ancillary systems, international trade and finance — that will all be integrated with Barclays plc.”

Barclays has made provision for Barclays Africa to continue using the systems should it fail to set up its own within the threeyear provisional period.

“Should Absa have to continue using some of Barclays’ systems, it can. But it’s on an arms-length transaction basis. Barclays is not leaving Absa in the lurch,” McCurrie said.

Barclays Africa has 1 207 branches, 774 of them in South Africa. Of its 10 013 ATMs, 8 885 are in South Africa. Although the branches and ATMs bear the Absa logo, they will have to be rebranded because the Barclays name and emblem feature in the current branding.

“Given that Barclays Africa is being given a clean slate, it might just go with a new name instead of Absa,” McCurrie said.

Absa — originally Amalgamated Banks of South Africa — became the group’s official name in 1997. This means Barclays Africa might be able to get away with using it as the official name for its branches outside South Africa.

“No one really knows what Absa stands for outside of South Africa. Absa could do what HSBC did and it might work.”