Barclays Africa Capital in fetters
The chairman of Barclays, a big British bank, was asked in a conference call last year whether the firm might draw back its investment in its listed African subsidiary. Actually, he replied, “we would probably be biased to own more than less.”
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Yet on March 1, Jes Staley, Barclays CEO since December, announced that it hoped to reduce its 62 per cent stake in Barclays Africa over the next two or three years, to focus on its main business in Britain and America.
On the face of things, the reversal is surprising. Barclays has been in Africa for over a century. Its blue eagle logo can be found in shopping centres from Nairobi to Lagos.
Moreover, Barclays Africa made a healthy return on equity of 17 per cent last year. It has grown quickly in recent years and plans to keep doing so.
Over the past year, it has acquired licences of various sorts in Ghana and Nigeria and part of an insurance business in Kenya. This will continue despite the sale of Barclays’ stake, Maria Ramos, Barclays Africa’s CEO, insisted this week.
But Barclays is one of the most weakly capitalised big Western banks. As well as the sale of its African division, Mr Staley announced this week that it would cut its dividend by more than half. (The not-so-prescient chairman, John McFarlane, had also suggested last year that the dividend would soon go up.)
Selling Barclays Africa would help boost Barclays’ capital in two ways. The proceeds of the sale could be retained to bolster the buffers directly. In addition, a sale would make Barclays’ existing capital go further.
At the moment, even though Barclays owns less than two-thirds of the business, international rules oblige it to hold enough capital to absorb all its likely losses.
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If Barclays’ stake falls below 20 per cent, however, it is off the hook, freeing it to use its capital more efficiently. Its capital ratio would rise by a percentage point.
The heavy capital requirements also make Barclays Africa less profitable for its parent, reducing last year’s 17 per cent return on equity to 8.7 per cent. (That is still better than Barclays’ struggling investment bank, which made a return on equity of just 5 per cent.)
Declining currencies—particularly the South African rand—and slowing growth in its main markets have further diminished Barclays Africa’s allure.
Its branches outside South Africa are expensive to run and, thanks to falling commodity prices, may get less profitable in the future. And then there is the fear that it may inadvertently abet crime or corruption, earning its parent a swingeing fine in America.
Unfortunately for Barclays, there is no obvious buyer. In South Africa, its main market, where it is listed, competiting authorities would probably prevent a local rival from snapping it up. Atlas Mara, an African investment fund run by Bob Diamond, a former CEO of Barclays, might bid.
But with a market capitalisation of roughly $300m, it will struggle to raise the $8 billion or so it would need to buy the whole stake. There is vague talk of Chinese or Japanese buyers. If none appears, Barclays may have to reverse itself yet again. — GB