After blazing a trail, Barclays beats a retreat in Africa

January 19, 2016, 11:22am

By Max Colchester and Matina Stevis, the Wall Street Journal on Business Day Live

NEW YORK — Barclays was one the few western banks to blaze a trail into sub-Saharan Africa. Now it is preparing to stage a gradual retreat.

Barclays executives have concluded that being the majority owner of a sprawling African business no longer fits with the bank’s strategy, according to people familiar with the matter.

The bank is drawing up plans to sell some of its 62% stake in Barclays Africa Group, the publicly traded entity that houses most of its African business, these people said.

The decision is part of a plan by Barclays’s new CEO, Jes Staley, to refocus the bank on a narrower range of profitable activities.

It comes as lenders world-wide dial back their ambitions, and financial turmoil dims the allure of operating in risky emerging markets.

The company is one of Africa’s largest banks, employing about 44,000 people and running 1,267 branches.

The decision marks a symbolic reversal for Barclays.

The bank built up its African banking network over nearly a century, making it one of the leading Western banks, along with Standard Chartered and Citigroup, operating on the continent.

Successive CEOs touted the business as a growth driver for the British bank.

But amid investor and regulatory pressure Barclays, like many of its European peers, is having to damp down its global ambitions.

Since Mr Staley’s arrival late last year, the former JPMorgan Chase executive has sought to cut weak units.

Barclays is chopping back its investment-banking operations in Asia and selling unwanted assets in Europe.

Previous CEOs, including Bob Diamond and Antony Jenkins, were enamoured with Barclays’s unique African footprint.

In 2005 Barclays bought a majority stake in South African bank Absa, building on a steady stream of acquisitions.

Mr Diamond, who resigned in 2012, outlined a "One Bank in Africa" strategy, pointing to the huge population growth in the region and its expanding middle class.

Absa was consolidated with several of its African businesses across the continent.

As Barclays prepares to retreat from Africa, Mr Diamond is moving in the opposite direction.

He co-founded his own bank, Atlas Mara, which is snapping up asset across sub-Saharan Africa.

For the past year, Barclays executives have considered ways to pare back the bank’s exposure to Africa.

Mr Staley and chairman John McFarlane have accelerated the planning, questioning the fit of a big African business, and wondering whether the capital locked up in the unit would be better served in its key corporate and investment banking units.

The exact timing and mechanics of selling the stake are unclear but more details could emerge when Barclays announces its 2015 results on March 1, when Mr Staley outlines his vision for the bank.

The African banking unit generated £791m ($1.13bn) of pretax profits in the first nine months of last year, 15% of the bank’s total.

Costs remained high, and risks associated with the venture have skyrocketed.

SA, where the bulk of Barclay’s African activities are based, has seen its currency plummet as it grapples with a mineral price collapse and political instability.

Its currency, the rand, has lost more than a quarter of its value against the dollar in the past six months.

Woes have been compounded by what analysts see as a weak government response — President Jacob Zuma changed three finance ministers in a week late last year, rattling markets.

The South African malaise bodes ill for the continent’s major companies and the banks that are based there.

Last week Fitch Ratings warned in a report that the banking sector for the whole of sub-Saharan Africa has a bad year ahead.

Banks are "likely to face slower growth, weaker earnings, worsening asset quality and tighter liquidity and capitalisation", Fitch said.

The International Monetary Fund in October dramatically cut the sub-Saharan region’s 2015 growth to 3.75%.

Finding an outright buyer for the African business is unlikely, bankers say.

The commodity price crash and China’s economic slowdown have dulled appetite for emerging market assets.

Outside its 12-country Africa unit, Barclays also controls a bank in Egypt, which is profitable and could attract bidders from the Middle East, bankers say.