A rebranded Absa
Underperforming corporate and investment unit could be targeted
Now for its investment banking challenge
● Barclays Africa rebrands itself as Absa this week, focusing attention on a possible shake-up of its corporate and investment banking business — which may have to compete with its former owner.
After the restructuring of the bank’s retail and business banking division, which included flattening its management structure, attention is turning to how CEO Maria Ramos will revamp the other divisions.
Corporate and investment banking is a unit of the Absa portfolio that has underperformed against its big four rivals and one that has gone through some significant leadership changes over the past few years.
The most high-profile change was the departure last year of current Eskom CEO, Phakamani Hadebe, as head of the bank’s South African corporate and investment banking division.
As part of a major leadership overhaul in 2016 that saw former Tiger Brands CEO, Peter Matlare, appointed as Ramos’s deputy, the bank’s highly regarded investment head Stephen van Coller left the company after being at Absa for a decade.
Last year, Absa CIB’s local division had headline earnings of R3.3-billion while for the rest of the continent it was R2.9-billion. Standard Bank’s unit reported headline earnings of R11.5-billion and Nedbank local earnings of R6.3-billion.
Absa’s challenge, like any CIB division in the country, is integrating the different cultures of investment banking and corporate banking — something a number of banks have been struggling with.
A former Absa insider said that while the Ramos-led institution had a strong balance sheet, a far-reaching network and big corporate clients, it needed a stronger investment bank culture. The key to creating that culture was leadership.
The person told Business Times this week the bank’s CIB business lacked the type of leader that would be able to attract clients and talent that would set it apart.
There are indications that Absa is planning to replace the leadership at the unit, but the bank said in a statement that it would not comment on restructuring or changes in leadership.
With both local and international banks such as Citi, JP Morgan and Deutsche Bank competing for business, the high-margin sector is highly competitive. And what could complicate matters for Absa is the possible re-entry of the Barclays Plc investment banking operation into South Africa.
This week, the Financial Times reported that Barclays Plc was looking to re-establish its investment bank locally. The news comes just a couple of years after the troubled British lender decided to pull out of its emerging-market businesses to focus on its local market and the US. From a controlling stake of more than 60%, the bank now has only 16.4% in Absa.
Possibly coming in with just a satellite office, with key executives jetting into and out of Johannesburg for meetings, commentators in the market don’t expect the bank to make much of splash locally.
But for Absa it could prove a different story altogether as the UK bank does have knowledge of the group’s clients and of its perceived shortcomings.
As part of its divestment from Absa, Barclays has a non-compete agreement that comes to an end in 2020, which analysts say should prove enough time to iron out any shortcomings in Absa’s CIB business.
Adrian Cloete, portfolio manager at PSG Wealth, said the two years that Absa has before competing head on with its former parent was enough time to create a “buffer”.
He said the bank had built up good capabilities while it was part of Barclays and “a lot was added to that business and many of the skills will be in the group. It is a far more diversified business than before Barclays came in.”
While Absa CIB was strong in lending, it was trying to build the advisory and mergers and acquisitions side of the business, which had set Standard Bank and RMM apart. But unlike those banks, Absa had struggled to keep a core leadership team long enough to “make it work”, said a former Absa banker.
Hardly a year after Temi Ofong and Mike Harvey were appointed to replace Van Coller, indications are that they are not going to last as joint heads of CIB. Last month the idea was to replace them with deputy CEO David Hodnett, but he declined. This puts Ramos under pressure to find a suitable leader to run the business if it is to grow faster than it has been.
The bank’s CIB business lacks the type of leader to attract clients and talent Anonymous
Former Absa insider
It is a far more diversified business than before Barclays came in
Adrian Cloete
Portfolio manager at PSG Wealth