Speculation that Barclays could be withdrawing from Africa after almost a century there sent shares in its business Barclays Africa Group tumbling yesterday.
The British bank said on Sunday its board was evaluating strategic options for its 62.3% stake in the African business, a holding worth about $8.3bn, and will give details about its plans today.
Shares in Barclays Africa, which is based in South Africa and also operates in nine other countries, dropped 6.8% yesterday before recouping some losses to trade down 5.5% at 1440 GMT.
The review comes within months of Jes Staley taking over as chief executive of the British lender, at a time when it is required by regulators at home to hold more liquid assets to shore up defences against any future financial crises.
Once at the heart of executives’ expansion plans, Africa’s growth prospects were dealt a blow in mid-2014 when prices of oil and other commodities – export mainstays of many economies – dived, partly due to a slowdown in leading consumer China.
Staley’s review also came after South African President Jacob Zuma decided to change his finance minister twice in less than a week in December, at a time when the economy is under severe stress, raising questions about Pretoria’s commitment to prudent fiscal policy.
While the African company accounted for 13% of Barclays’ core profit in the first nine months of 2015, its earnings growth was the slowest among the British lender’s main businesses in that period.
Analysts and bankers said the share price drop was mainly driven by investor expectations that any sale of such a large stake in Barclays Africa would be conducted at below market prices.
“Barclays could not have picked the worse time to sell. Apart from the standard discount the sale of major stakes, they will struggle to find buyers,” said a Johannesburg-based banker, who declined to be named as he is not authorised to speak publicly.
Fund manager Korner Perspective director Graeme Korner said there was little appetite in the market for a major banking transaction also said finding a buyer for such a large stake would be challenging.
“Unless there is a really powerful player that has a deep balance sheet and can add strategic value to Barclays Africa it’s not in the interest of minority shareholders to see it passed on to somebody else,” he said.
But another banker, who also spoke on condition of anonymity, said Chinese banks might be best placed to do a deal because they had stronger balance sheets than their European or US counterparts.
“But $8bn is not a small change for anyone so there’s stronger likelihood that Barclays will sell down rather a complete exit,” he said.
Barclays Africa said any announcement by its parent would not affect its operations, while its Kenyan division assured customers it would not be shutting down.
“I assure you that your money is safe with us and you should not be concerned about the operation of your account,” said Kenyan Managing Director Jeremy Awori.
Barclays has had a presence in Africa since 1925. Barclays Africa was created three years ago under a deal in which the British bank handed over ownership of its businesses in eight African countries to its South African subsidiary in exchange for a 62.3% stake in the new entity.
The company makes most of its profit and revenue in South Africa and also operates in Kenya, Botswana, Ghana, Zambia, Mauritius, Mozambique, Seychelles, Uganda and Tanzania. It had £36bn ($54bn) of assets on a risk-adjusted basis and made a profit of £791mn ($1.1bn) in the first nine months of 2015.