Barclays, ex-boss compete for Africa’s banking promise

Reuters/London/Johannesburg

Gaborone and Lusaka are the unlikely settings for a battle between one of the world’s most famous investment bankers and his former firm over the future of African banking.

American banker Bob Diamond last week unveiled plans to raise $400mn to double the war chest of his African venture Atlas Mara and set him up to buy more banks.

This was just five days after Barclays, the British bank where Diamond was chief executive before he was ousted in 2012, announced the dismantling of the investment bank he built up and pinpointed Africa as one of its two main growth engines.

The prize both are chasing is sub-Saharan Africa’s mostly unbanked 1bn population and the companies there looking for capital to grow. Economies are growing on average at 5-7% a year, the fastest expansion in a generation, offering lucrative returns for lenders who get it right.

“It’s ripe for entry,” said Keith Jefferis, a former deputy governor at Botswana’s central bank and now managing director at Econsult, a consultancy in Botswana’s capital Gaborone.

“If you operate efficiently and pick up market share then potentially it’s a very profitable strategy, but there is a lot of fragmentation. Each country has different systems so it’s very management intensive, but openings are there.”

Diamond has already bought a platform in Botswana, Mozambique, Tanzania, Zambia, Zimbabwe and Rwanda. Barclays wants to be a top three bank in South Africa, Kenya, Ghana, Botswana and Zambia and also operates in seven other countries.

New technology, in particular a mobile banking boom, should help banks spread further and reach more customers at far lower cost than in the past.

Diamond has teamed up with Africa-based entrepreneur Ashish Thakkar to set up Atlas Mara, with the intention of building it into Africa’s leading financial services firm. They spent most of a $325mn initial fundraising to buy BancABC in March, and will use the extra $400mn to get a deeper and broader footprint.

Diamond, 62, spearheaded Barclays’ takeover of the US arm of Lehman Brothers in the heat of the financial crisis in 2008 and the African deals mark a return to the spotlight.

The avid sports fan from Massachusetts was forced from Barclays in 2012 by UK regulators after the bank was fined $450mn for attempted rigging of Libor interest rates.

Diamond’s successor, Antony Jenkins, is attempting to repair Barclays’ reputation after a series of scandals raised concern that a high-risk, high-reward culture ran across the bank.

Jenkins is dramatically shrinking Barclays’ investment bank, cutting 19,000 jobs and selling businesses in mainland Europe, and wants to divert more capital to grow in Africa, where Barclays has been since 1925, but where returns have been sluggish for years.

Less than a third of sub-Saharan Africans have bank accounts, and an even lower percentage of firms hold a loan or line of credit.

As well as huge untapped markets, margins are attractive, with the spread between borrowing and lending rates over 10% in many countries, compared to 2% or less in many western countries.

Barclays said its Africa business made a return on equity of 8-9% last year, below what it costs to raise capital, but it expects to improve that.

One investor in Atlas Mara said he expected Diamond to deliver a return on equity of 20% or more and pursue “an M&A strategy” in the company’s early years.

“There’s high growth in Africa and it’s an underpenetrated market. It should also have a cost of capital advantage over the domestic banks, which is very significant and if he (Diamond) executes well it will only get stronger over time,” the investor said.