Exiting Africa: Barclays Announcement Expected Tuesday

Exiting Africa: Barclays Announcement Expected Tuesday

From FinancialTimes. Story by Martin Arnold and Patrick Jenkins.

Barclays’ new CEO is planning to announce on Tuesday that the British bank has decided to exit its African operations in a bold move to refocus the bank on its core U.K. and U.S. markets.

After a review of the African business led by Jes Staley, the bank’s board decided last week that in principle it made strategic sense to get out of the continent, according to unnamed sources familiar with the matter.

The board had a subcommittee examine the practicalities of how and when to sell Barclays Africa, one of its four main lines of business. By delegating authority it avoided having to disclose the decision immediately.

This means that a sale of the bank’s 62.3 percent stake in its Johannesburg-listed subsidiary will depend on numerous factors, including market conditions and the response of regulators.

The stake is worth $4.81 billion US at current market prices. Investment bankers say there are no obvious strategic buyers for the African business. The value of the stake has fallen in recent months, making the option of steadily selling the stake to institutional investors less attractive. Barclays declined to comment.

Several people who have met Staley recently say he recognizes Africa is one of Barclays’ few genuine growth areas, but he believes it is becoming a costly distraction as the South African rand devalues and the country’s economy slows down.

The bank also sees extra risks of corruption and misconduct in Africa. “Barclays does not own all of the equity, but it owns 100 percent of the risk if something goes wrong,” a source said.

One benefit of selling out of Africa is that it could address worries about Barclays’ capital.

“While we expect the process of selling Barclays Africa Group to prove more difficult than the market currently expects … a wholesale exit from Africa would seem to make sense,” said Joseph Dickerson, banks analyst at Jefferies.

Barclays has had operations in parts of Africa for almost a century. Barclays Africa Group Limited, which includes the South African branch network Absa, is one of the largest banks on the continent, with a $60.98 billion balance sheet. It has 45,000 employees — a third of all Barclays staff — and 1,267 branches across 12 countries, including Kenya, Ghana, Tanzania, Mozambique, and Uganda.

But the recent contribution of the African business to the overall group’s profits has been hit by the devaluation of the South African rand against the British pound.

Read more at FinancialTimes.