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Posted on Wednesday, 16 October 2013 10:37

Bank mergers: Unity is Strength

By Jana Marais in Johannesburg

Photo©NADINE HUTTON/BLOOMBERG VIA GETTY IMAGES

BSA'S July takeover of Barclays' African operations will diversify its earnings base and help boost returns to shareholders, but concerns remain over the challenges faced by operations in South Africa.

The newly combined Barclays Africa Group (BGA, according to its listing code on the Johannesburg stock exchange) was formed after Absa bought Barclays' assets in Botswana, Ghana, Kenya, Zambia, Mauritius, Uganda, Tanzania and the Seychelles.

The R18.3bn ($1.9bn) deal, which excludes Barclays' operations in Egypt and Zimbabwe, increased Barclays' stake in Absa from 55.5% to 62.3%.

Shareholders will earn higher returns than in Absa as a stand-alone company, but risks remain as earnings from the other African operations are more volatile, explains Johann Scholtz, an analyst at Afrifocus Securities.

In the first half of the year, Absa grew its headline earnings by 8% to R4.3bn, compared with a 1% decline to R874m for the Barclays Africa assets – about 80% of which are in Botswana, Ghana, Kenya and Mauritius.

Increasing its revenue in South Africa, where it has underperformed rivals and lost market share in its key retail segment, seems unlikely as management has failed to present tangible initiatives, Scholtz says.

The rationale for the tie-up is to align the oversight and strategic direction of Barclays' African business, with Absa boss Maria Ramos as chief executive of BGA.

However, Nedbank Capital analyst David Danilowitz warns that Absa "has to date not delivered on acquisitions".

After buying a 50% stake in Banco Comercial Angolano amidst much fanfare in 2005, it sold out in 2009. Its R10bn purchase of retailer Edcon's debtors' book last year also failed to generate sufficient returns to offset the cost of capital, Danilowitz says.



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