Barclays Africa Sale Means Late Nights for Banks Breaking Up

  • U.K. lender hasn’t sought permission to cut stake below 50%
  • Barclays Africa is worst-performing South African bank in 2016

Barclays Plc sold the first slice of its controlling stake in Barclays Africa Group Ltd. just two months after Chief Executive Officer Jes Staley laid out his strategy to boost capital. Here’s why the bank’s next move has taken much longer and some key issues the 365-year-old lender must overcome to speed up its two- to three-year timeframe for the sell down:

How difficult is it to sell the stake?

Project teams are working late nights at Barclays Africa to make sure every detail is taken into account, according to the Johannesburg-based lender. The South African Reserve Bank must ensure Barclays’s withdrawal doesn’t endanger stability across the continent, put South Africa’s currency at risk or upset transactions for Barclays Africa’s 12.5 million customers. Also at stake is the future of 41,250 employees at the company formerly known as Absa Group, more than 70 percent of whom are in South Africa.

What’s happening inside the banks?

The banks are negotiating a transitional services agreement to deconsolidate Barclays Africa, according to Staley. They are also figuring out how to change reporting lines within teams, maintain global distribution for investment-banking clients, which customers should get transferred to different units, how many staff are needed and where, how to change Barclays-linked e-mail addresses, how to deal with software licenses and who will do dollar-based trading for clients across Africa.

What has the uncertainty done to Barclays Africa?

Barclays Africa is the worst-performing lender on the six-member FTSE/JSE Africa Banks Index this year, having gained 12 percent compared with the average increase of 24 percent, with investors concerned about shares that still have to be sold on the market. The stock is trading at a 12-month dividend yield of 6.3 percent, the highest in the index.

What happens to Barclays Africa’s name?

After more than 100 years in Africa, there is a real chance that the name Barclays may disappear from the continent. “Decisions on brand are being carefully considered and will be implemented over time once they have been taken,” Barclays Africa said in an e-mailed response to questions. Absa kept its branding and red colors even after the purchase by Barclays in 2005, while the turquoise colors of Barclays was retained in the other African units.

What do Barclays’ holdings look like now?

The U.K. bank owns 50.1 percent of the South African lender, a stake which is valued at about 68 billion rand ($4.9 billion). It sold about 12 percent through an accelerated book build in May for 13.1 billion rand, where demand exceeded supply.

Who might be interested in a stake in Barclays Africa?

Dubai-based Abraaj Group and U.S. private-equity firm Carlyle Group LP were initially interested in a stake along with Bob Diamond’s Atlas Merchant Capital LLC, but withdrew after regulators made it clear it didn’t want Barclays Africa in the hands of buyout companies. While South Africa’s Public Investment Corp. is interested in boosting its 6.5 percent holding, it has said it hasn’t yet been able to form a consortium with enough money, and may take up more shares in another book build.

When might another book build take place?

Barclays hasn’t yet applied to the Reserve Bank to take its stake below 50.1 percent, the central bank said in an e-mailed response to questions. Instead, it’s working with the regulator along with Barclays Africa to ensure the process is smooth once the transaction is ready. The London-based parent, which will need to make separation payments, is working well with Barclays Africa management and is under no pressure to get the transaction done earlier, Chief Financial Officer Tushar Morzaria said. The parent will want to get a sale done as soon as possible following a 47 percent rally this year in pound terms in Barclays Africa’s share price, Harry Botha, an analyst at Avior Capital Markets, said.

How is the South African Reserve Bank ensuring stability?

By asking a lot of questions. From technology systems, to the working of ATMs and the company’s strategies to lessen panic if customers react negatively to changes, the lender and the central bank are planning for every scenario. The Pretoria-based central bank is also playing the role of lead regulator for all the African countries involved.

What are the regulations?

Under present rules, no investor can buy more than 15 percent of a South African bank without permission from the central bank. The purchase of a controlling stake needs approval from the finance minister, who will work with the regulator. There is no process in law for a transaction of this nature, according to Adrian Cloete, an analyst at PSG Wealth in Cape Town. “A regulatory deconsolidation is very complex.”

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