Absa likely to remain in Barclays stable

IT was “highly unlikely” that Londonbased Barclays would sell off its South African business as part of its restructuring, banking analysts said this week.

Earlier this year, Barclays completed the sale of its retail business in Spain, and this month Jes Staley, the new CEO at Barclays, sold the bank’s retail business in Italy.

This week, the Financial Times said Staley had turned his attention to the “large” African business, raising questions about how it fits into the rest of the group.

But a Barclays insider noted that Barclays Africa, which includes Absa, formed part of the core assets of the London parent, and it was noncore assets that Staley was interested in selling.

The source said the announcement to this effect that Barclays made in May last year remained unchanged.

Barclays owns 62% of Absa, which is worth about R72-billion according to the current market capitalisation.

Adrian Cloete, portfolio manager at PSG Wealth, said: “It is highly unlikely that Barclays will sell its entire Absa stake.” If anything, Barclays could look to cut the retail sector of Absa, which was currently about 60% of the business.

Drikus Combrinck, portfolio manager at Capicraft Investment Partners, said: “It is quite typical for new CEOs to get rid of certain assets when they come in.

“This would not be the first time Barclays pulled out of South Africa in times of political turmoil. The bank also pulled out of the country during the apartheid years.”

The decision this month by President Jacob Zuma to axe two different finance ministers within four days sent markets into a tailspin and resulted in the top four banks being downgraded to the lowest investment grade.

But Cloete said that despite the cabinet shock and persistent currency pressures over the past year, Africa still remained a growth market.

“Yes, South African banks took some hard hits in recent weeks and the downgrades were unfortunate, but it remains a solid earner for Barclays,” he said.

Barclays Africa’s return on equity during the past financial year only reached about 9.3% compared to the

❛ This would not be the first time it pulled out of South Africa in times of political turmoil

expected 11%. But Cloete noted that a return on equity of 9% or 10% in African markets was still higher than the 5% that the bank was getting from its more developed markets, even though the US and the UK were the biggest earners.

Barclays, mostly through Barclays Africa, has a presence in South Africa and 14 other African countries, including Nigeria, Kenya and Ghana.

Cloete said there were “exciting corporate and investment banking” opportunities in Africa such as hedging, currency deals and commodity pricing. “That is good business for the London banks, but the margins are lower and it is good to bolster them with the retail banking sector. People still like a physical network of banks.”