However, when this is converted into Barclays’
British sterling-denominated accounts, it
looks weaker for two reasons. Firstly Barclays
has to hold equity against the whole of its
African business, as it is on the hook for all its
liabilities if anything goes wrong. But the UK
bank only includes 62 per cent of the profits
in line with its shareholding.
research team at Berenberg wrote in a note
to clients.
Yet the outlook for Africa is deteriorating by
the day as oil and commodity prices keep
falling and China’s economy slows. The
International Monetary Fund forecasts 3.75
per cent growth for sub-Saharan Africa this
year, the lowest level since 2009.
Secondly, the depreciation of the South
African Rand against the British pound — it
has fallen 25 per cent this year — drags the
performance down further. The African unit’s
return on equity at group level was 9.3 per
cent last year — below Barclays’ target of 11
per cent.
Last month, Fitch downgraded South Africa’s
credit rating to one notch above subinvestment grade and Standard & Poor’s cut
its outlook to negative. Zambia’s credit rating
has also been downgraded even deeper into
junk.
“As a standalone business the returns of the
African operation are higher than the rest of
the group through the cycle,” said Chirantan
Barua, a banking analyst at Bernstein. “But it
does not fit with the strategy, investors don’t
pay you a premium for it and you don’t invest
in it. So it makes sense to look at selling it.”
In addition, South Africa’s black economic
empowerment rules mean that Barclays’
stake in its African business is capped at 75
per cent. The UK bank has a minority of board
seats and it has recently struggled to control
its subsidiary. In Zimbabwe this is capped
at 50% under the so-called “indigenisation”
laws.
Some analysts, however, question the
wisdom of selling at a low point in the cycle.
“This would leave a sell down of the stake
which would crystallise losses and it is unclear
whether Barclays would get any capital relief
from the British regulator until potentially
below a 20 per cent stake,” the equity
Talks over a deal to sell Barclays’ Egyptian
and Zimbabwean operations to its South
African-listed subsidiary broke down this
month, raising questions about the future of
its operations in those two countries.
Barclays had planned to rebrand the Absa
branch network in South Africa under its own
Barclays colours after increasing its stake in
the Johannesburg-listed business by merging
its African activities three years ago. But the
rebranding was recently shelved. Investment
bankers are already speculating about
potential bidders.
After leaving Barclays, Mr Diamond set up
the Atlas Mara fund specifically to acquire
African banks. If the UK bank decides to split
its Africa business, its former boss is likely to
be first in line to snap up smaller operations
outside of South Africa.
In Zambia, Atlas Mara controls Bank ABC and
has recently taken over Finance Bank.
24
FARMERS GAZETTE
November 2015