Barclays Africa: the worst of both worlds

You can’t be half-pregnant. That’s why one needed to read the early March statements and interviews with Barclays Plc’s group chief executive Jes Staley, and group finance director Tushar Morzaria, with more than a healthy dose of scepticism. On March 10, Staley told Bloomberg that “the idea of keeping some optionality in Africa is attractive”. Except it’s not.

For all the talk of looking to “deconsolidate” its holding in Barclays Africa Group, which suggests the retention of a minority “strategic” stake of around 20% (à la ICBC/Standard Bank), the best outcome for both the British bank and its soon to be former unit is an outright sale.

One must surely question – as London investors seemed to do on March 1 – whether Staley’s plan is a plan at all? The market wasn’t exactly enamoured with the prospect of Barclays doubling down on investment banking.

Someone far smarter than I summarised it well in a private conversation we had recently: “Banks currently have a plan or strategy of doing whatever it is they think might appease people for the next three to six months”.

While Barclays’ presence on this continent for over a century looks set to end with nothing more than a whimper (amid the spin), it’s increasingly unclear whether even it knows what it wants to do with its African operations.

Regardless, Maria Ramos, David Hodnett and the rest of Barclays Africa Group’s executive committee, sit with some rather large headaches.

The overhang will limit any potential upside in the Barclays Africa share price (and with it all manner of related incentive/bonus schemes).

Branding is an obvious headache (visited Barclays Towers West recently?). And my hobby-horse: those ever-inflating “Member of Barclays” logos…

Staff movement (and the secondments we’ve seen from Plc to African operations, not so much the other direction) is going to be a tricky one.

In an interview with Bloomberg following the announcement, Hodnett seemed to confirm the companies would “still operate an investment banking joint venture” without offering further details. That might be the plan now, but what if an acquirer had its own investment banking operation? Or is this JV a fait accompli?

The operation itself – and its operating model (probably a bigger nuisance) – is one problem. Clients and deal-flow from a substantially trimmed global footprint (and co-operation agreement) is quite another. Already Hodnett has said that “the African unit’s work with multinational corporations and its cash-equities business may be impacted by the parent’s withdrawal”.

But, arguably the largest headache Barclays Africa faces is that its been furiously migrating many of Absa’s legacy systems to Barclays platforms, all in the name of “integration”. Never mind the billions and billions of rands spent… In many (most) cases, it’s now stuck on platforms it cannot build a sustainable future on. Will it license the technology? Can it? And this is not just confined to corporate and investment banking, although this is where much of the focus has been in recent years.

By the end of 2014, online dealing platform Front Arena was live in all African operations, foreign exchange trading platform BARX was live in Botswana, Ghana, Kenya, Mauritius, Tanzania, Uganda and Zambia (by end 2015 this was “live in all planned countries”) and online cash management banking platform, Barclays.net was operational in Kenya, Uganda and South Africa.

In the retail banking space, customers will remember how late Absa was to the app ‘game’. It was the last of the big five to launch, and its app emerged nearly two years after FNB’s. At the time, we were told how the bank “leveraged off the broader Barclays group”. What isn’t that widely known is that Absa was rather far along with the development of its own app before that project was halted in favour of an implementation of the Barclays group app. And reversing its legacy platforms into a global app platform wasn’t the simplest set of tasks. The Absa app and Barclays apps (across various operations globally) were effectively the same platform.

Absa’s taken that a step further with what seems to be the quiet implementation of the vanilla Barclays app (this went live less than a week ago), after updates to its current app stalled in December. It’s also very blue (not red). Could this have been part of the (now aborted) bank rebranding plan? One wonders how long this new (separate) app will remain live… (It was likely on a project roadmap signed off 18 months ago and forgotten about in this turmoil.)

Untangling these complicated technology platforms is going to be very messy (and horrendously costly). Can it start to unwind some of this IT platform spaghetti? Or at the very least stop implementing group systems?

Perhaps that 20% ‘strategic’ shareholding is a small price to pay….

But to what extent will the board and executive of Barclays Africa Group be able to influence and control its own destiny? What if it makes a decision at odds with the operating model of its (soon-to-be-ex-) parent? Can it make such a decision? Dare it? Is its future “firmly in its own hands” as Ramos attests?

Barclays Plc FD Morzaria told analysts in early March: “We’re in no rush to sell that, we’ll sell that at the right time, at the right price.” What happens while Plc does what’s best for Plc? The stable door is open. Remember that at this point, what’s good for Plc is almost completely at odds with what’s good for Barclays Africa (and vice versa). Expect the internal (and market) pressure to ratchet up.

For Ramos and co, the strategy and execution paralysis is only just beginning. By the end of this year it will be almost completely untenable. Can Barclays Africa afford to be stuck, unable to make important, long-term decisions for the next “two to three years” while Plc fiddles in London?

The best outcome for Barclays Africa, its staff, its (minority) shareholders, South Africa and the other countries in which it operates is a swift sale to a (real) long-term investor.

Perhaps that 20% ‘strategic’ shareholding is too big a price to pay.

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