Finance

Duncan Mavin is a former Bloomberg Gadfly columnist.

Could Barclays' withdrawal from Africa open a door for the bank's former chief Bob Diamond?

Diamond, ousted from Barclays after its involvement in the Libor scandal, has spent the past few years building Atlas Mara, an Africa-focused financial services group.

Atlas Mara's geographic reach -- it has stakes in eight banks in seven African countries -- would fit well with Barclays' sub-Saharan business. It is known well by Diamond. Most of it was run previously by Atlas Mara's CEO John Vitalo when he too was at Barclays. And Diamond is clearly a believer in the long-term future of the continent.

The same can't be said of Barclays' current management.

Africa makes up about a fifth of the bank's profit and earnings from the region jumped 11 percent last year, excluding the impact of currency movements. It delivered a return on tangible equity of 11.7 percent in 2015 compared with just 6 percent at the investment bank.

Out of Africa
Returns at Barclays' Africa unit outstrip those of the investment bank
Source: Company

But the unit has been hit by the slump in the rand and commodity prices. Barclays notes that while it owns 62.3 percent of South Africa-based Barclays Africa Group Ltd. -- the biggest chunk of its Africa business -- it must account for it as though it owns the whole thing, without the benefit of actually doing so.

The bank says the solution is to sell down the BAGL stake to 20 percent or less, at which point the accounting and regulatory treatment is more favorable. Other African businesses in Egypt and Zimbabwe have been shoved into the non-core unit.

Not everyone's convinced. Citigroup analyst Andrew Coombs pointed out in a note earlier this week that the BAGL stake "offers long-term 'option value' on both growth and capital flexibility." He also noted the decision to sell is "a surprising U-Turn" after Barclays chairman John McFarlane said last summer that "we would probably be biased to own more than less; we're allowed to go up to a 74 percent."

Indeed, the weak rand and depressed market mean Barclays could have bought more of BAGL cheaply: the shares have fallen 25 percent in a year. One possibility is that the minority owners weren't willing to sell -- understandable given that Barclays still insists BAGL is "a well-diversified business and a high-quality franchise."

Due South
Shares in BAGL have fallen sharply over the past year
Source: Bloomberg

Still, Barclays is selling, so who are the potential buyers? Chinese investors have piled into Africa in recent years, but the currency weakness and commodity slump may lessen their appetite for more. Gulf funds are less expansive than in the past, given weak oil and gas prices. Big western banks are mostly scaling back in far off locales these days, as Barclays itself shows.

Which leaves Diamond's Atlas Mara. Barclays' BAGL stake has a market value of about $4.9 billion. That would be too big for Atlas Mara to swallow whole -- its London-listed shares have a market capitalization of about $318 million. Yet as Barclays scans potential buyers, Diamond will surely be on the short list. He told Bloomberg News last week that the tough economic climate and weak markets make this "a better entry point" for investing in Africa's banking industry. Building out Atlas Mara from Barclays' discarded units could be too tantalizing to resist.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Duncan Mavin in London at dmavin@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net