Diamond seeks redemption in Africa banking
Ousted Barclays chief shrugs off obstacles facing his Atlas Mara firm, write Stefania Bianchi and Paul Wallace
ROBERT Diamond has had some grand ideas in his time, and this may be his grandest yet. Mr Diamond — for some, a poster boy for all that went wrong at big banks — is looking for redemption in global capitalism’s hinterland. Three years after he was pushed out as CEO of Barclays, Mr Diamond is assembling a lender spanning sub-Saharan Africa.
It is a bold undertaking for someone a British government minister called “the unacceptable face of banking” in 2010. But Mr Diamond has lost little of the swagger that made headlines during the financial crisis. Nor has he lost his appetite for risk — or a good fight.
It is “mission impossible”, says Zoran Milojevic, an analyst at New York-based brokerage Auerbach Grayson & Company.
The doubts are not unreasonable. Shares in his investment vehicle, Atlas Mara, have more than halved since a December 2013 initial public offering in London, while the commodities boom that made Africa the last great growth frontier has collapsed. He is also facing more experienced African hands at Standard Bank Group, Standard Chartered and Ecobank Transnational.
Sceptics did not prevent Mr Diamond from turning a declining franchise into a global investment-banking powerhouse at Barclays, which he left in 2012 after the bank was fined for manipulating benchmark interest rates.
While banking in the world’s poorest continent is far different from banking in Canary Wharf and on Wall Street, Mr Diamond says his experience can overcome the inevitable obstacles.
The group posted a first-half profit, swinging from a loss, as bad loans plunged.
“We are good investors, and we are also really good operators,” he said in a September 17 interview in Singapore. “Taking an investing and operating approach is not only unique but it is to protect the downside and really enhance the upside of our investment.”
Since he established Atlas Mara with Ugandan entrepreneur Ashish Thakkar, the British Virgin Islands-registered company has made about $500m of purchases — from Nigeria in the west to Rwanda in the east and Zimbabwe in the south. There will be two or three more acquisitions in the next year, he says.
Mr Diamond and his Dubaibased executives, including CEO John Vitalo, a US Marine Corps veteran who used to run Barclays’ Middle East business, and Brad Gibbs, a former MD at Morgan Stanley, intend to exploit a largely untapped market.
Just 34% of African adults have bank accounts, compared with 94% in rich countries, according to the World Bank.
They are not alone believing in the potential for pan-African banking. Togo-headquartered Ecobank operates in 36 subSaharan Africa countries. Standard Chartered and Barclays are expanding across much of the continent, as are SA’s Standard Bank and FirstRand.
Still, the potential upside may remain just that for a while.
“The whole premise that Africa is growing and that countries will trade more with each other is true,” says Ronak Gadhia, a banking analyst at Exotix Partners, a London-based investment bank focused on frontier markets. “But it’s not happening at the moment and it might not happen for another five or 10 years.”
Then there is the slowdown in China, sub-Saharan Africa’s biggest trading partner, and capital flight as investors anticipate the first increase in US interest rates since 2006.
Atlas Mara’s first-half results were dragged down by the weakening of Zambia’s kwacha and Mozambique’s metical, both among the world’s 10 worstperforming currencies against the dollar this year.
Sub-Saharan Africa’s growth rate will fall to 3.3% this year, the slowest this century and a “very grim figure for a region often touted as the ‘next China’”, John Ashbourne, an Africa economist at Capital Economics says.
That means Atlas Mara probably overpaid for acquisitions, says Mr Milojevic. It increased a stake in Nigeria’s Union Bank to 30% after buying an extra 21% for $250m, about book value, last year. Union Bank’s stock, down 30% this year, now trades at less than half its book value.
Atlas Mara has ploughed about $575m into Botswana’s BancABC, which has subsidiaries in Mozambique, Zambia and Zimbabwe, Rwanda’s BRD Commercial Bank and Union Bank, according to Renaissance Capital estimates.
The firm is in talks to buy Finance Bank Zambia and is considering a stake in Mozambican lender Moza Banco, according to people with knowledge of the matter. It is also planning a $50m investment in Ghana’s Agricultural Development Bank, the country’s Citi FM radio station reported. The aim is to have a presence in 10-15 countries from seven on the way to “a 100% integrated banking group with a single brand”, Mr Vitalo says.
Atlas Mara has lagged behind other African banking groups, falling 53% to $4.98 in the past 12 months, while Ecobank’s shares are down 15% in dollar terms and FirstRand’s have slipped 1.5%.
All of which has fuelled frustration among shareholders.
Mr Diamond and his team were scolded on a conference call last month for not buying back stock after Atlas Mara reported first half net income of $4.1m.
“The more upbeat you guys get, the lower your stock price goes,” Leon Cooperman, CEO of Omega Advisors, a New Yorkbased hedge fund, told them.
“I have confidence in you. The market doesn’t.”
Mr Vitalo says the share decline stems from the lack of information Atlas could provide when it started as a specialpurpose acquisition firm. More recently, Mr Diamond, who owns 2.4% of Atlas, told Mr Cooperman executives were barred from trading its shares, suggesting an acquisition was in the offing.
Investors have also complained about compensation levels at Atlas Mara.
Keeping investors on his side will be crucial for Mr Diamond, given that he may have to raise more capital if Atlas Mara is to buy majority stakes in the subSaharan African region’s biggest economies such as Nigeria, Ghana and Kenya.