LONDON CALLING

It was a Sunday morning in Cape Town sitting at one of the V&A Waterfront’s well established drinking holes, when it hit me that was finally coming back to South Africa. It was all over the headlines in the Sunday Press, the deal had been struck and the “Barclays Eagle” had landed. This would be the biggest deal ever to be done in South Africa post 1994, South Africa was open for business as the world had done its “due-diligence” over the past 10 years and was confident to invest in South Africa. The “Scramble for Africa” had taken a different meaning now, international businesses were looking to increase their investments in South Africa as a Launchpad into Africa. International businesses the world over wanted to be able to do business with familiar names that they respected and trusted. Barclays had been in Africa for over 100 years and had made their name in Anglophone Africa, sharing the spoils with yet another British . There were only two names in “Africa” that were worth mentioning in the banking circles Barclays and Standard Chartered. Barclays now had an upper hand on Standard Chartered and they were going to consolidate their position in Africa or so I thought.

Barclays were very aggressive in their move to enter South Africa that they were prepared to pay a premium for ABSA the elusive diamond in the African crown. The marriage of the two was not that easy, but it worked. ABSA paid the parent company a solid dividend year in and year out, by 2012 Barclays had recouped approximately 40% of the purchase price they had paid for their 56% stake in Absa. Wow that’s a good return, at this pace Barclays would take approximately 20years to recoup their investment in ABSA. The deal was so sweet for the lads in they decided to up their stake in their investment to 62.3% in 2013 and incorporated the other African franchises under the banner of Barclays Africa Group.

So how did it all go wrong? Investments of this nature are not micky mouse trades that can be forgotten about and can be switched around easily. I would like to dispel the notion that Barclays decided to pull out of South Africa because of a depreciating Rand and that the Honourable Nhlanhla Nene was fired from the Ministry of Finance. You only have to look at the GBPZAR chart over the last 20 years to realise that this could not be a consideration (I have inserted a chart below). How do you make a mulita-billion Pound investment in an emerging market country and not realise there is currency and political risk. The answer to this is in the changing landscape in bank regulation in Europe, Barclays Plc has been literally put in a corner by regulators to cut costs and manage its capital more prudently. What has precipitated these new regulations? , well there are a number of learning points the European have had to pay significant fines for the fixing scandal and European banks had taken bigger bites than they could chew.

“The (Barclays Africa Group) board notes that it is clear from this announcement that Barclays plc is reducing its shareholding in Barclays Africa due to recently introduced regulatory burdens specific and particular to Barclays plc as a UK-headquartered and globally significant financial institution” Barclays Plc 2016 Financial Statements.

I have had calls from clients who have asked me should I take my money out of my ABSA account and put it in a safer bank. I almost fell off my chair when I got the first call but I realised that the wounds of SAAMBOU Bank had not fully healed amongst some of the senior citizens of our country. This is no SAAMBOU Bank and you do not need to panic. ABSA remains a solid bank and has a very strong balance sheet and is prudently run. The regulatory environment in South Africa and the world over has changed significantly over the last decade, creating fire walls that will protect depositor’s funds.

So what does this mean for investors and account holders at ABSA? Well its business as usual for now, Barclays PLC said this week in their results presentation that they will look to sell down their 62.3% shareholding in BGA to a non-controlling stake over the next 2 to 3 years. So what does this mean, effectively Barclays would like to free up some cash from their investment in the next 2 to 3 years. Will they sell their full position in BGA, my feeling is I think not at least for now… Could the bank have a new controlling shareholder in the next 2 to 3 years? Yes indeed

it could, how is that going to affect an investor in BGA? The permutations of this can be numerous and one cannot speculate on the size and shape of BGA in the future.

If Barclays do call it a day in Africa, I seriously think that this will be a case of sightedness form Barclays PLC. The “lucky buyer “of BGA will inherit a well-oiled banking machine which has a strong banking network and a solid customer base. Sub-Saharan Africa continues to grow and BGA has significant presence in key markets. The call from London to Maria Ramos the CEO of BGA last year would have been uncomfortable for her but I think she has fielded more in her time. I still think this is a good investment for the future, but let’s keep our eyes open for any vultures that may want to feast on the remains of the Barclays eagle.

London Calling | 07 March 2016 2

Any opinions, news, research, analyses, prices, or other information contained within this research is provided as general market commentary, and does not constitute investment advice. GT Private Broking will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The content contained within is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to make independent investment decisions.