- Bank's profitability eroding in South Africa as economy slows
- CEO Staley must decide where capital best deployed, Rake says
Barclays Plc must decide whether its capital is best deployed in Africa amid slowing growth in the continent’s second-biggest economy and a need to further shrink its balance sheet, according to Michael Rake, the bank’s former deputy chairman.
"Barclays has historically been in a very good position there, but is suffering in South Africa economically,” Rake, who stepped down from the British bank’s board at the end of 2015, said in an interview on Bloomberg Television Thursday. "The question becomes around priorities and capital. It’s a good business and the board, I’m sure, will continue to keep under review its African position and how to handle it."
The London-based lender owns a 62 percent stake in Johannesburg-based Barclays Africa Group Ltd., the legacy of a 2005 deal by former Barclays Chief Executive Officer Robert Diamond. Barclays, led by CEO Jes Staley and Chairman John McFarlane, has pledged to trim the bank’s operations worldwide and refocus on the U.K. and U.S.
Britain’s second-largest lender will give a strategic update alongside its full-year earnings on March 1. Candice Macdonald, a spokeswoman for Barclays in London, declined to comment on the bank’s plans for Africa.
Barclays shares tracked a slide by world equity markets, falling 3.8 percent to 194 pence at 3:04 p.m. in London and extending their decline to 11 percent this year. McFarlane pledged in July to double the share price over the next three to four years. Barclays Africa, which trades in Johannesburg and has a market value of about $6.7 billion, fell 1.2 percent to 130 rand and is down 9.2 percent this year.
Barclays’s common equity Tier 1 capital ratio, a measure of financial strength, was 11.1 percent as of Sept. 30, the lowest of the five largest U.K. banks. Risk-weighted assets at the bank increased year-over-year in the third quarter.
“Barclays still has some work to do on reduction of the balance sheet,” said Rake, 67, who is chairman of BT Group Plc. Staley “will be able to balance the need to continue to reduce the size of the balance sheet as we exit a lot of other activities, but have a real, valuable and valid investment banking capability” alongside retail and credit-card operations, he said.
In Africa, where Barclays has operated for almost a century, pretax profit slipped 7.7 percent in the third quarter, compared with increases at the credit-card and personal and corporate-banking divisions. The region reported a return on equity of 9.7 percent in the third quarter, above the 9.3 percent level for 2014, but below the bank’s target of at least 11 percent.
In the region, the bank had 52.2 billion pounds ($75 billion) of assets, about 14 percent of its total, as of Sept. 30 and employed 44,700 people in Africa and the Middle East at the end of 2014, according to its annual report.
"It’s for the Barclays board to judge the future of Africa," Rake said. "If you take a long-term view, Africa could be very important, as it has five of the fastest-growing economies."
Political and economic turmoil has made Barclays’s job more difficult. President Jacob Zuma has taken South Africa to the brink of a junk credit rating and caused the rand to plummet against the dollar last year after he fired his finance minister and replaced him with an unknown lawmaker.
Staley and McFarlane have frozen hiring indefinitely and are planning to cut 20 percent of staff at the investment bank. Rake, who was deputy chairman for more than three years, said Barclays will prioritize advisory and execution businesses, such as mergers and acquisitions and debt capital markets, and cut back in the "so-called casino banking area."
“I think the focus would be at the moment on London, New York, perhaps with Tokyo, Hong Kong and Shanghai, but really being able to serve global clients,” Rake said of his “personal view” for the best geographic distribution for the investment bank.