Ramos leads Barclays Africa into a new era

It is easy to conclude that Barclays made a monumental error in its decision to exit Africa. Its network on the continent has played a central role in banking across anglophone Africa for over a century. In the coming decades, less developed financial markets and a demographic boom could have made Barclays’ African network, covering 14 countries, the most exciting part of its entire business.

But in reality, the dream for Barclays in Africa was already broken – perhaps as much by its inability to invest enough in Absa, the top-three South Africa bank it bought in 2005, as by the pressures of global regulation and the downturn of the commodities markets. Now Absa, together with Morocco’s Attijariwafa and Malawi’s First Merchant Bank, are walking away with banks that were part of Barclays for nearly a century.

For Maria Ramos, chief executive of the Johannesburg-listed former subsidiary, the sale constitutes another new twist in an extraordinary life and career. Alongside the man who became her husband in 2008 – the former finance minister and anti-apartheid campaigner Trevor Manuel – Ramos played a central role in forging South Africa’s economic model as treasury director general, before taking over as chief executive of Transet, transforming the ailing parastatal’s profitability.

Ramos, who was born in a Portugal when the country was still mired in depression and run as a dictatorship, moved to South Africa as a child. She started out as a clerk in the original Barclays South Africa, now First National Bank, and won what had been a men-only Barclays’ scholarship to study at the Institute of Bankers in Johannesburg. This was only a few years before Barclays’ first exit amid the international opprobrium and sanctions of the late 1980s.

A quarter of a century later, after Barclays paid up to re-enter South Africa and just before the global crisis hit Absa particularly hard, Ramos moved back to an incarnation of the bank where she started, this time as CEO.

In the latest twist, Ramos is at the helm of an independent bank. Moreover, thanks to the One Africa strategy that she formulated in the early 2010s with Bob Diamond, Barclays group chief executive at the time, her group retains 12 former Barclays businesses across Africa. In 2013, far from envisaging an Africa exit, Barclays transferred most of its businesses in the rest of Africa to Absa, which became Barclays Africa, in return for reducing the freefloat and increasing its stake from 55% to 62%.

In May, a year after group CEO Jes Staley announced an Africa exit, Barclays’ stake in Ramos’ bank fell to a minority as it carried out a R37.7 billion ($2.8 billion) stockmarket selldown. Once regulators approve an additional 7% purchase by South Africa’s Public Investment Corporation (PIC), Barclays’ stake will drop to 14.9%, low enough for regulatory deconsolidation.

Staley’s decision has also precipitated the now-completed sale of Barclays Egypt to Morocco’s biggest bank, Attijariwafa, and the tentative sale of Barclays Zimbabwe to Malawi’s FMB. Ramos baulked at including those two in the 2013 transfer but both are important deals for the two acquirers.

“This is an historic moment for us,” Ramos tells Euromoney Africa. “Not being part of Barclays hasn’t constrained us, but it gives us an opportunity to reset our strategy." 

Will Barclays’ successor banks in Africa make better use of businesses established but then abandoned by Barclays now that they are no longer hampered by a group head office in stolid Britain?

Attijariwafa, for one, is confident it can do so in Egypt, a country that matters far more to the Moroccan bank than to Barclays. Its shareholders are also more attuned to markets such as Egypt. Attijariwafa has acquired a bank that it thinks has good-quality borrowers, the right risk and governance controls, and a well-qualified team.

Barclays may even have overlooked borrowers that the Moroccan bank considers creditworthy.

“We have a higher risk appetite than Barclays for projects in Egypt,” says Attijariwafa co-CEO Ismail Douiri. “It gives us the potential to unleash energies. Bankers were bringing interesting opportunities that did not pass their filters and that may pass our filters.”

International corporate clients in Egypt might not be able to rely on the Moroccan-owned bank because it lacks a triple-A credit rating, but local corporate clients have access to a banking seniority at Attijariwafa, right up to the chairman, who they would never see at Barclays.

Ramos’s bank could enjoy similar benefits. “Barclays Africa is finally allowed to grow rather than upstream dividends,” says Jaap Meijer, analyst at Arqaam. 

Ramos says the group exit will not give way to a relaxation in risk standards. She adds that her bank, unlike many pan-African banks, already enjoys a large market share in most countries where it operates. But Ramos sees growth, especially in pan-African corporate and investment banking, and insurance outside South Africa, given that it launched and acquired insurers in east Africa in 2015.

Capability in corporate and investment banking is perhaps the most valuable legacy Barclays will leave behind. The group had placed particular focus on developing this area since 2013, especially outside South Africa. 

"The PLC enabled us to advance our opportunities as a group in those areas,” says Peter Matlare, Ramos’ deputy chief executive who covers Africa excluding South Africa. He uses ‘PLC’ to refer to the London-listed, London-based parent.

“We were underinvested in corporate and investment banking in the rest of Africa before 2013”.

Part of the rationale of the One Africa strategy was to transfer successful products across the network, including insurance, which is more established in South Africa.

The bancassurance push outside South Africa will continue, according to Matlare.

“For us it’s about how we look forward now,” says Ramos. “We’re excited about being standalone; we’re excited about being able to shape a much more pan-African future. We have a significant opportunity in the settlement with the PLC on the separation to invest in technology, and a lot of that investment is in our corporate and investment bank and it’s in our rest of Africa business. That’s what the future is about.”

In truth, ownership of a controlling stake in Africa has not worked well for Barclays – nor, in many respects, for Ramos’ minority shareholders. Barclays Africa’s price-to-book value, about 1.2 times, is slightly below Nedbank and a couple of hundred basis points below Standard Bank, while FMB parent First Rand trades well above two times book value.

The wider difficulties at the British bank, including leadership swings and the poor profitability of its home market, as well as regulatory and tax pressure, have weighed on Africa. 

Kuben Naidoo, deputy governor of the South African Reserve Bank, says funding growth through retained earnings, or contemplating capital raisings, has been harder at Absa than the other big four banks: “Barclays Africa was capital-constrained due to its parent’s capital situation, which contributed to slower expansion of Absa.”

Analysts covering Barclays Africa agree that the parent’s hesitation to give more of a free rein to African risks and investment needs, as well as the uncertainty around its ownership, have contributed to the regional operation's underperformance against rivals such as First Rand, or Kenya’s Equity Bank, both in terms of its stock valuation and its ability to win business. 

Barclays Africa’s 17% return on equity last year was way behind both Equity Bank and First Rand, which both earned an ROE of 24%, according to Arqaam.

The common feeling is that Absa was a better bank before Barclays bought it, at least in South African retail, which is the biggest part both of Absa and Barclays Africa.

“The brand deteriorated because of the acquisition by Barclays,” says Harry Botha, analyst at Avior Capital Markets in Cape Town.

The result of several mergers in the late 1980s and early 1990s, Absa had South Africa’s widest branch network by 2005, which might have led to complacency about its position in the retail market, says Botha. In the half decade after the 2008 crisis, Absa suffered the worst of consumer dissatisfaction with banks by steering clear of all except the safest South African household risks. It was then late to grab local opportunities in digital banking and unsecured lending.

After 2013, Botha and others say Barclays managed to stem customer haemorrhaging in South Africa, Kenya and elsewhere, thanks to its commitment to Absa and Africa and the wider strategic sense of the deal to centralize African ownership and operations in Johannesburg. The South African retail bank in particular has made changes to risk management and invested more in technology.

“The strategy set out when we acquired the Barclays businesses across the continent has put us in pretty good stead,” says Ramos. “We continue to invest in our retail and business bank in South Africa. We have lost customers, but we’ve also gained new-to-bank customers in important segments, in core middle market and affluent. We’ve launched new products and revitalized existing products.”

Ramos points to the firm’s strengths in South Africa in mortgages and cards, and particularly strong gains in the first half of 2017 in vehicle asset finance in South Africa.

But she admits client numbers are still falling, even if less rapidly than they were.

Botha adds that recent results have disappointed in South African retail, while efficiency as well as customer satisfaction is also deteriorating. The bank’s involvement earlier this year in a highly public investigation into possible rand-trading collusion with other local and international banks, including Standard Bank, probably didn’t help, although Reuters reported it has been granted conditional immunity for cooperation with investigators.

If Barclays’ exit is an opportunity, it might not be coming at the best time for the business or economic cycle, especially in South Africa. Africa’s most developed economy slipped into recession this year for the first time since 2009, shrinking 0.3% in the final quarter of 2016 and contracting 0.7% in the first quarter of 2017.

“We expect to see growth in the mortgage book this year, although in a very tight market, we don’t expect that to be up high,” says Ramos.

“South Africa is going through an economic recession, and when you go through a recession of course there is a spillover into business confidence, and that itself exacerbates the problem. When I look at our business, we can see the effect of that, we can see the effect of that on consumers, we can see the effect of that on the investment cycle.”

Nevertheless, she contends, the upsides still outweigh the downsides in South Africa and across the continent, which is why – bolstered by what she says is a very good separation deal with Barclays – the accelerated bookbuild in late May was oversubscribed. 

“I think that speaks volumes about the confidence shareholders have about the future of this business,” she says.

Aside from contributing to a black economic empowerment deal, Barclays has agreed to give Ramos’ bank £765 million ($985 million) to extricate itself from Barclays, including a big chunk for technology and rebranding, and £195 million to terminate the service agreement made in 2013. Ramos says the figure was the result of intense negotiation and a lot of work to determine the precise costs of the separation: “I was always very clear that my primary line of accountability and responsibility was to the board of the listed entity.”

Naidoo, like Ramos, was mindful of the fair treatment of minorities, as well as the bank’s capital ratios: “We didn’t want to saddle the local entity with costs arising from the decision to sell.”

The cost of the loss of branding will be hardest to quantify. Absa never switched its brand in South Africa to Barclays, but in markets such as Kenya, Barclays has been Barclays for as long as living memory. Ramos can keep the Barclays brand in Africa for three years, but rival bankers debate if subsequently changing to a South African brand (if Ramos chose to use Absa) would be better received than a colonial one that at least had the benefit of stability and a happy association with football.

“We have been investing outside South Africa since we acquired those businesses in 2013,” says Ramos. “Clients and colleagues across the continent have felt a significant change in the experience. The brand is never just about the name.” 

However, she admits that “changing a brand that has as much affiliation as Barclays in Kenya” will not be easy. She and her team were still undecided as to what name to use outside South Africa as recently as August.

Crucially, questions remain over precisely how much Ramos’ all-important corporate and investment banking strategy can continue to benefit from links to Barclays’ global network and trading platforms. Botha says the corporate and investment bank in Johannesburg is “running dry” after the departure of key bankers and is now managed by divisional heads. Among those who quit, Stephen van Coller, the former head of the corporate and investment banking business, moved to telecoms group MTN late last year.

Ramos seems confident the African bank can retain parts of the linkage: “We have been building up the corporate side of corporate and investment banking for the last four years now. Part of the strategy for us and for Barclays PLC has been to build up the Africa portfolio. Barclays has clients that we bank for them in Africa and we’ve got African clients that need an international bank.”

“We have, as part of the transition, ongoing arrangements and a relationship with PLC,” she says. “I imagine beyond this transition that Barclays is still going to need a partner on the continent and we will need an international partner.”

Ramos’ group is already rumoured to have looked into acquisitions outside South Africa this year. Bloomberg reported it was a frontrunner in the Mozambican central bank’s auction of troubled lender Moza, in a country where its share of banking business is relatively low.

Still, Ramos is clear that the bank already has plenty to worry about, particularly as its rest-of-Africa acquisition only happened four years ago. 

“No, we are not looking to do acquisitions,” she says, asked about the rumoured bids. “We are going through a significant separation process with the Barclays sell-down.”

As Ramos indicates, her biggest immediate challenge will be to disentangle systems that stretch from Johannesburg to Nairobi to southern England and beyond, even if the separate listing and a mostly independent board might have allowed Absa to forge its own path to a large extent.

That practical challenge also makes an acquisition less imminent in Nigeria, for example, despite cheap valuations there. Ramos seems reticent to make a big commitment now to a market sometimes lacking in transparency, where buying a bank would require a lot of management care and attention. Yet Nigeria is the biggest gap in its network. It only has a representative office in the continent’s biggest economy, despite applying for an equities trading licence two years ago.

“In the fullness of time we will consider our options in Nigeria,” she says. “It comes back to how much we have on our plate.”

In other words, leaving behind the legacy of Barclays Africa’s flip-flopping – and reaching the bank’s full potential, whether in South Africa, Nigeria, or elsewhere on the continent – will take more than a quick stockmarket sale by the PLC. 

It is a small and quirky market, and a little-known buyer. But the sale of Barclays’ Zimbabwean operation to Malawi’s First Merchant Bank, announced two days after it sold down to a minority in South Africa, shows how operational and reputational challenges have been at the forefront of Barclays’ African sales.

The Zimbabwean bank is, perhaps, an attractive enough asset. Zimbabwe was once one of Barclays’ most profitable markets. Even as the government still struggles to keep cash in the country after the hyperinflation of the last decade, the Zimbabwean bank’s financial statements show it is comfortably earning a double-digit return on equity. 

According to FMB chairman Hitesh Anadkat, Barclays has managed Zimbabwe’s economic troubles carefully, even if that has meant losing market share. It offers well-trained bankers for FMB’s wider franchise.

There were other hopeful local buyers – indeed, possibly too many. The Zimbabwean government is keen to encourage more employee ownership of local businesses. Barclays has agreed to give a generous chunk (15% according to local press) to employees. International banks, including Barclays, have resisted Zimbabwean indigenization policies promoting majority local ownership. But the local chief executive is rumoured to have favoured a management buy-out. The bank’s workers’ union also fought through the courts to get a higher stake.

For Barclays, however, playing off buyers to get the best price might not have been the main concern. Zimbabwe matters little to the group numbers, if and when it might get the money out of a country with tight capital controls. The question was perhaps more who could give Barclays a relatively quick and clean exit.

Barclays, from Anadkat’s perspective, had to find a buyer with the technical competence to handle the complex process of separating and recreating back-office systems. That might be tough for a local private equity firm with little banking experience. Any buyer would also have to have a reasonable chance of preventing the lender from rapidly going bust – again, perhaps tough if servicing acquisition debt financing meant the bank took on more risk to ramp up profitability.

Even so, the sale to a little-known bank like FMB might have puzzled bankers reading about it in London, especially given that, as the Financial Times pointed out, a man who was until recently on FMB’s board, Rasik Kantaria, was also a large shareholder and director at Crane Bank, which the Ugandan central bank put under administration last year. In any case, asks one banker in London, how is FMB able to finance a purchase that will almost double its size?

Anadkat is an influential businessman in Malawi. Aside from FMB, which is also listed in Malawi, he has an array of interests in the local economy, including a big telecoms operator, a factory and various bits of choice real estate. The heir to one of east Africa's south Asian trading fortunes, Anadkat set up FMB in the mid 1990s alongside Kenya’s Kantaria family (still a shareholder). He previously worked for a now shuttered corporate finance boutique in Hartford, Connecticut.

Zimbabwe’s domestic banks have been through some tough years, and it might be safe to assume international lenders present in Zimbabwe, including Standard Chartered, had little desire to ramp up their investment there. FMB, on the other hand, is Malawi’s third-largest bank. And Malawi, Anadkat points out, was once part of the same country – the Federation of Rhodesia and Nyasaland – as Zimbabwe, along with Zambia. So there are still plenty of trade and migration links between the three.

FMB is, moreover, the only local lender in either Malawi or neighbouring Zambia with a big market share and international acquisition experience. The bank, in its existing operations, also does similar business to Barclays Zimbabwe: trade finance, foreign exchange, business overdrafts, high-end retail.

“We are a southern African regional bank in Malawi, Botswana, Mozambique and Zambia. Zimbabwe is the one piece that’s been missing,” Anadkat tells Euromoney Africa. “We understand these markets. The geographies are very interconnected.”

FMB’s international expansion began in 2008 with an entry to Botswana, in Capital Bank. Anadkat says FMB has since successfully taken on Malawian, Mozambique and Zambian businesses owned until 2013 by Swiss-based emerging-market financial group ICB. 

“We’ve done a number of launches of IT systems and bought banks and integrated their IT systems into ours,” he says.

The due diligence process, in Anadkat’s telling, sounds almost more onerous on the seller’s part as Barclays travelled to Malawi and checked out FMB.

The latter’s shareholders, as well as retained earnings, will finance the purchase. “We’ve got enough depth in our balance sheet that even if our investment doesn’t work out great, it won’t affect any of our other banks in terms of capital,” he says. FMB’s capital adequacy ratio will be above 20% after the purchase, according to Anadkat.