Why selling Barclays’ Africa operations doesn’t make business sense - CNBC Africa

Why selling Barclays’ Africa operations doesn’t make business sense

Financial

by Reuters and CNBC Africa 0

Africa produces 13 per cent of Barclays' core profits. Map: Wikipedia

In last couple of weeks Barclays has been working hard to dispose of its non-core assets, now news comes from the Financial Times that the bank’s new CEO Jes Staley is considering selling some or all of the British bank's African operations as part of his strategic review.

Staley has raised questions about the strategic fit of the large African business with the rest of Barclays, but no decision has been taken yet, the FT said on Wednesday, citing people familiar with the matter.

Barclays declined to comment.

Staley, who took over as CEO two weeks ago, is expected to review all parts of Barclays' businesses and outline his plans around the time of annual results on March 1.

Barclays has been present in Africa for more than 100 years and has said the continent offers good growth options, despite lacklustre returns in recent years.

However, Bloomberg Gadfly points out that on closer inspection it seems unlikely that the bank would exit most of its African operations. The South African business, the column argues, comprises the bulk of its business on the continent. Further, it says, Africa is an important contributor to Barclays’ earnings.

The Africa business had 36 billion pounds of assets on a risk-adjusted basis and made a profit of 791 million pounds in the first nine months of this year, or 13 per cent of the bank's core profits.

In July, Bloomberg Gadfly says “Chairman John McFarlane said he was ‘biased’ to make South Africa part of the bank's ‘solid core’.”

The FT said Staley's review came after investor confidence in South Africa was shaken by President Jacob Zuma’s decision to change his finance minister twice in less than a week at a time when the economy is under severe stress.

ANALYST'S REACTION

Kokkie Kooyman, a fund manager at Denker Capital was surprised by the statement, explaining that normally this would be the best time to invest.

“Banks that don't have investments in Africa should actually now be looking at investing because now is the time where your prices are low, your valuations are low and from here on now things can only get better.”

The fund manager believes Staley’s rational is most likely because of his investment banking background.

“Investment bankers by nature tend to take shorter views, although as a CEO of a giant like Barclays, you should be taking 20-year views,” Kooyman said.

Kooyman added that Africa has “diminished” a lot in terms of growth prospects so he reckons Staley could be revaluating how much capital he wants to commit towards a “low growth continent”.

“And in South Africa, we are suddenly looking at a country which could be growing at zero to one per cent for a few years,” Kooyman said. 

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