It is a giant leap forward for Barclay’s vision of being a banking powerhouse on the African continent. It has had a small-scale operation in South Africa since 1995, but the acquisition of Absa gives it critical mass, particularly on the retail side, in Africa’s biggest economy. Barclays’ head for Africa and the Middle East, Dominic Bruynseels, said the deal improves Barclays’ competitive position on the continent.
“South Africa is obviously very important in terms of the inward investments that are occurring into Africa,” said Mr Bruynseels. “A lot of the companies doing that either use South Africa as a regional base or are South African. What we want to do is access those flows which will give a long-term sustainable future to our African businesses as well.” The bank has already been feeling competitive pressure from large South African banks like Standard Bank.
Of South Africa’s four major banks, Absa makes the ideal fit for Barclays. It has a strong retail franchise but has always battled to build its competencies in investment and corporate banking. That presents a good opportunity for Barclays, which plans to bring the strengths cultivated in Barclays Capital to bear on Absa. Altogether it wants to add R1.4bn (£125m) to Absa’s bottom line per year, 60% of that from revenue enhancement. The integration will be undertaken over four years with a price tag of R1.8bn. Barclays will also bring in card systems and asset management practices to bolster Absa. The price Barclays is paying is a 38% premium on the price Absa was trading at when the bid first became public, yet will be immediately earnings accretive to Barclays.
The deal has an important second phase to it – once bedded down, Absa will begin a complicated process of buying out Barclay’s other nine operations in Africa. Each has unique regulatory issues and some have minority shareholders, so it is likely to be a drawn-out process.
Absa is Barclays’ first acquisition in its plan to gain a strong foothold in Africa’s three biggest economies. Next on its list will be Nigeria and Egypt, which currently have small Barclays operations.
