adminUK banking group Barclays, which reported abysmal results on Tuesday this week, announced its intention to trim down its 62 percent stake in Barclays Africa, a development that has implications on Barclays Bank Zimbabwe.
Jes Staley, who took over as Barclays CE in December, is undertaking a radical restructuring to narrow the group’s focus largely to investment banking.
It is a move that one analyst described as desperate, rather than strategic, saying it was prompted by losses and impairments and a dearth of capital to support its portfolio of existing businesses.
The group had to sell something, and Barclays Africa was chosen.
Mr Staley on Tuesday reassured the market that the group would execute the sell-down over two to three years, and would be willing to hold on to a minority stake.
Barclays Bank Zimbabwe has emphasised that it remains committed to the Zimbabwean market and will continue to broaden its product range and increase client flow in spite of parent company Barclays Plc’s announcement yesterday that it had moved the operations to the list of non-core assets that it holds with an intention to sell.
Yesterday Barclays Plc outlined a plan to gradually sell down its 62 percent stake in its Africa unit, Barclays Africa Group Limited and de-consolidate the business from its accounts within two or three years.
The bank said it would also accelerate the sell-off of unwanted assets. It also added its Egyptian, Zimbabwean and Asian wealth businesses to the pile of “non-core” assets it holds.
Managing director George Guvamatanga yesterday told analysts that even though there is now an intention to sell, BBZ remains a part of the Plc family and remains committed to serving its customers.
“What the board has announced is an intention to sell but Barclays Zimbabwe remains part of the Barclays Plc family.
“We remain committed to the Zimbabwean market and in fact we are in the process of increasing our presence in the market.
Barclays’ decision is a reflection of just how extreme global banking regulation has become in the wake of the financial crisis. This was captured in the big difference between the return on equity. Barclays Africa reported a healthy 17%, and its parent reported a much lesser 8,7%. The difference is due to a range of capital charges and levies that Barclays is required to hold against its investment in Barclays Africa.
The requirements are steep because it is classed as a globally systemically important financial institution (a Sifi, as they’re known in current banking jargon). The effect is that although Barclays owns only 62% of the African subsidiary, and is entitled to only 62% of the rewards by way of dividends, the regulators require it to hold capital to support this investment as if it owned 100%.
This is not a good bargain, especially for a group that has plenty of trouble elsewhere in its global operations.
The Johannesburg-based banking group has a very strong franchise in SA, and has built up a significant platform across Africa since it took over Barclays’ other African operations in 2013.
Banking the African continent should be an attractive investment proposition for the global group, which, analysts point out, still performed better for Barclays than its investment banking arm.
That has a return on equity of less than 6% and has to operate in a highly competitive, heavily regulated market. — Post Reporter/Fin24.
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