Why Barclays is reducing its Absa stake
The piecemeal sale of Barclays Africa may be an opportunity for pan-African financial services group Atlas Mara, founded by former Barclays CE Bob Diamond and entrepreneur Ashish Thakkar, to carve out its African banking empire.
Barclays on Tuesday confirmed its plans to sell its holding in Barclays Africa over a period of two to three years. It wants to consolidate its business in Europe and the US.
Atlas Mara, which has stated intentions to grow by acquisition, raised $625m from an initial public offering and private placement of its shares. On its own, this is too little to take Barclays’ stake, valued at about $4.9bn, off its hands.
Atlas Mara has made no secret of its intentions to build a premier financial institution in subSaharan Africa. The Financial Mail is informed that it is often approached by vendors about deals, but there hasn’t been a substantive approach from Barclays yet.
Atlas Mara was unable to comment on what it says is speculation about a deal.
The Black Business Council, which has repeatedly called for a majority black-owned SA bank, says it would not encourage black investors to “overpay for such an asset”.
“While we believe the Barclays window provides an opportunity, it makes more sense for African Bank to revert to its origins in terms of its founding fathers,” says secretary-general Xolani Qubeka. He is referring to investors led by Sam Motsuenyane, who founded the bank, which later collapsed under the leadership of Leon Kirkinis.
But the investment may have promise.
Barclays is beating a retreat from a company that has delivered better returns than two of its four core units over the past three years. Only Barclaycard, its credit card business, has outperformed Barclays Africa on a standalone basis.
Barclays is one of 30 banks the Financial Stability Board and Basel Committee on Banking Supervision have designated as too big to fail.
These banks have to collectively raise nearly $1.19 trillion in capital to absorb losses and avoid taxpayer bailouts, as happened during the 2008 global financial crisis.
Nico Smuts, an analyst at 36One Asset Management, says the reasons Barclays gave for the proposed sale do not reflect negatively on Barclays Africa.
“Due to a tsunami of new regulations that has hit European banks in recent years, Barclays Plc has become a disadvantaged owner of Barclays Africa,” he says. Punitive capital requirements mean that Barclays, as a controlling shareholder, receives less on its investment than smaller shareholders.
“It makes financial sense for Barclays Plc to reduce its stake to a level where most of these punitive capital requirements no longer apply.”
In its annual report, Barclays CE Jes Staley says: “We face a regulatory environment where we carry 100% of the financial responsibility for Barclays Africa, and receive only 62% of the benefits.”