Barclays Plc (BARC), Britain’s second- biggest lender by assets, and South Africa’s Absa Group Ltd. (ASA) said they’re in talks to combine their African units and complete a plan started seven years ago.
There’s no certainty the talks will lead to any deal, which wouldn’t be completed until 2013, the banks said in a statement. The combination would affect assets in Kenya, Botswana, Zambia, Tanzania and Ghana. Barclays, based in London, bought 54 percent of Absa in 2005 for $4.5 billion to expand in emerging markets.
Barclays shares rose. The British bank’s African operations may be worth as much as 20 billion rand ($2.41 billion), according to Patrice Rassou, an Absa investor who helps oversee about $41 billion as head of equities at Sanlam Investment Management in Cape Town. The continent has 1 billion people, faster growth rates than developed nations and as much as 80 percent of its adult population don’t yet have bank accounts.
“These are well-run, profitable operations with little overlap with Absa except for Tanzania,” Rassou said by phone. Strategically, it’s the right move for Absa given the potential for African growth, he said.
Robert Diamond, who resigned as Barclays chief executive officer last month after the lender was fined for manipulating global interest rates, sought to boost the British bank’s profit by combining Absa and Barclays’s products and customer bases across more than 10 African countries. Together the banks have almost 60,000 staff on the continent.
‘Single Entry Point’
Absa dropped its original plan to buy the Barclays assets in 2008 after commodity-driven economic growth in Africa sent their earnings surging, making the businesses too expensive to acquire. Barclays revived the plan in April 2011, aiming to consolidate operations at Absa headquarters in Johannesburg and move other work to Dubai.
The South African bank’s shareholders will get “a single entry point into Africa” from a deal, “giving shareholders in both businesses the benefit of African growth,” CEO Maria Ramos said in a telephone interview from Johannesburg today.
It’s not clear how the ownership structure will work or whether Barclays will take a larger stake in Absa, as “there’s lots of work to be done and it’s very early days,” Ramos said.
The announcement of the potential combination has “nothing to do with Bob leaving last month” and the operational integration has been underway for more than a year, Ramos said, referring to Diamond.
Barclays’s listed subsidiaries in Kenya and Botswana will be maintained, according to the U.K. bank. Kenya is Barclays’ largest African unit, Ramos said.
Barclays’s pretax profit from Africa, including the bank’s holding in Absa, rose 13 percent to 910 million pounds ($1.4 billion) in 2011. The unit contributed 15 percent of the bank’s 5.97 billion-pound pretax profit. Together, Barclays and Absa operate in 12 countries and have over 14 million customers, according to Absa’s annual report.
“They’ll have a single base and a single entity and be able to take a lot of costs out of it,” said Christopher Wheeler, an analyst at Mediobanca SpA in London. “It would be a net positive and will mean they can compete with the likes of Standard Chartered (STAN) in those markets.”
Since Barclays bought into Absa in 2005, the lender has gone from being South Africa’s best-performing bank stock to its worst after an exodus of executives, slowing income, and rising bad debts caused profit to slump. Rivals Standard Bank Group Ltd. (SBK) and FirstRand Ltd. (FSR) have boosted lending and expanded in Africa while Absa’s growth on the continent stalled.
“ This could prove to be a transformational transaction for Absa,” said Greg Saffy, a banks analyst at RMB Morgan Stanley in Johannesburg. “The key issue now is relative price.”
Barclays shares rose 3.2 percent to 197.05 pence by the close in London, giving the bank a market value of about 24.1 billion pounds. The stock has risen 12 percent this year, compared with the FTSE 350 Banks Index’s 14 percent advance in the period.
Absa slipped 0.9 percent to 141.01 rand in Johannesburg. It is the worst-performing stock on the six-member FTSE/JSE Africa Banks Index, little changed this year compared with the average return of 19 percent.
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