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Why is Barclays Pulling Out of Africa? - By Philip Odera

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Why is Barclays Pulling Out of Africa? - By Philip Odera

“Mbu, I hear that Barclays is leaving Africa. Aah, let them go! Me, I’m fed up with some of these banks that think they are doing us a favor by denying us loans when we need them,” was a statement I overheard recently.

 

I was in a supermarket checkout counter and stuck between two very vocal men who clearly knew each other and were quite comfortable conducting their conversation with me sandwiched between them. The fact that they were leaning back and forth to conduct this conversation was becoming a quiet irritation to me. Not because I didn’t have an interest in the subject matter, but rather that I felt more like a wall preventing a link between the two guys.

 

I therefore offered to change positions in the checkout line, so that the guy behind could now move one position forward and speak directly to his friend. No sooner had I done so than I noticed the conversation about Barclays had ceased. I had been conned. The intention was clearly to make me uncomfortable enough to swap positions and it had worked wonderfully.

 

And now behind me was a little boy holding what looked like a lollipop and staring directly at me with a look that seemed to suggest, “You’ve been had by those two guys. I hope that your wife doesn’t allow you to shop alone too often, you’d be taken too many times!”

But the little boy and his unspoken thoughts was just a fleeting glance. What really captured my attention was a lady a little further down the line, who was wearing a faded blue T-Shirt that had the inscription of some corporate social activity or other. The T-Shirt had clearly seen better days and appeared to be worn as part of a longstanding shopping routine that was performed virtually the same time every week. Slanted under this inscription in smaller writing were the words “Sponsored by Barclays.” How ironic.

 

I wondered whether Barclays as an institution felt as tired and worn out with its Africa journey as the lady’s T-Shirt figuratively suggested.

You see Barclays has been around for a while. A very long while at that! Here is a bank that was founded in 1690 by some East Anglian Quaker families, ostensibly to finance the goldsmith trade and thereafter to move into other areas of finance.

 

I mention the Quaker background because it’s actually quite important. You see at the time of its founding, a lot of commerce was conducted in a manner to suggest that only those quick of mind and sleight of hand could succeed in commerce. And these in turn encouraged financiers who gave as good as they got. Until of course the Quaker families of John Freame and Thomas Gould came along.

 

Barclays was founded on the principles of a moral high ground and grew its business over the next few centuries precisely with this ethical and moral backbone as its strength. Therefore when it stepped onto the African continent in 1925 as Barclays DCO (Dominion, Colonial and Overseas), it had the full weight, bearing and confidence of its management and shareholders to make a success of its steadily expanding empire. And expand it did; from South Africa in the South to Egypt in the North. Any sizeable economy with a rising British presence at the time had a Barclays bank to shore up the financial sector.

 

However in the 1970’s Barclays had to leave one of its largest and at the time most promising markets, South Africa, on account of the Apartheid policies in existence then. Ironically one of the levers applied in pressuring the bank to exit South Africa at that point was that it was morally and ethically inconsistent with the principles under which the bank was founded.

 

Wind the clock forward to the 1990’s and Apartheid has ended and Nelson Mandela has been released from prison.  South Africa looks very promising and the Rainbow nation is filled with optimism from all quarters. Barclays decided to re-enter the market that it had left. It does so and in the process purchases 62.3% of a local South Africa bank called ABSA. This is important, because it is through ABSA that Barclays decides it will control the rest of its continental Africa business (save for Egypt and Zimbabwe, which did not fall under ABSA control).

 

So why have I been sharing all this historical stuff with you? Well it’s because it has a direct bearing on what is being ascribed as the reasons why Barclays is leaving the African continent.

 

The story has it that there are three main factors that are contributing to this surprising call for an exit from Africa.

  1. Falling Commodity prices – There is a notion that with tumbling global commodity prices affecting most of the African countries where Barclays operates, growth prospects look increasingly dim and quick recovery looks tenuous at best.
  2. Slowdown in China – It is commonly accepted that the Chinese economy has been the largest absorber of raw material from Africa and a large supporter and funder of projects on the continent. With a slowdown in China, there is a perception in some quarters that Africa will be equally impacted.
  3. Currency Movements – Barclays Africa operations are substantially controlled out of South Africa and so therefore the amalgamating reporting currency for its operations is the South Africa Rand. The Rand has lost approximately 40% of its value in the last year alone and therefore substantially reducing the value of what is reflected in the books of the parent company in the UK.

All three points by the way are factually correct to a large extent. But they are also misleading in a way. Here is why.

  • It’s true that Africa has witnessed a drop in commodity prices of late and that this has negatively impacted the growth of a number of economies; however even with the downward revision of expected GDP growth, Africa is still growing more than twice the expected growth of western economies. Insufficient reason to pull out. 
  • Barclays Africa performance outstripped that of Barclays Investment, suggesting that this is largely a Barclay’s problem and not an Africa problem.
  • So what is it that would lead a bank that has had a firm grounding in Africa to suddenly decide that it needs to pull out, and as quickly as possible too?

  • Could it have anything to do with the recent spate of heavy fines that the bank has had to pay for various violations and misconduct? I take you back to 2012 when an American by the name of Bob Diamond was in charge of the bank and the UK’s FCA (Financial Conduct Authority) fined the bank for participation in a LIBOR fixing scandal?

LIBOR is an acronym for London Interbank Borrowing Rate. This is the rate which banks lend to each other in the market. The higher this rate is, the more it reflects inherent risk in the market and you will recall that post the global economic financial crisis, banks were very keen to show that they were healthy. There was therefore incentive to reflect a low borrowing rate and several big banks, Barclays included, got caught out in this practice and were fined heavily for this transgression.

  • As if that was not enough, in 2015, Barclays received the largest fine in UK banking history. A whopping US$2.4 Billion, for its role in the manipulation of FX trades in the United States. The fine was payable as follows:

  • $710 million     - US Department of Justice
  • $485 million     - NYDFS
  • $400 million     - Commodities Futures Trading Commission
  • $342 million     - US Federal Reserve

And as if that was not enough, Britain’s FCA added an additional fine of $441 million to what the Americans had already hit Barclays with in May 2015. It’s almost as if regulatory bodies in the respective western countries have found a far more politically palatable way to raise funds without directly taxing their citizens.

 

 To compound matters, for as many countries as Barclays operates in, it is exposed to potential fines in the respective entities it owns. And as for the United States, they are extending their domicile and their right to query any transactions in the world that they are uncomfortable with, if the currency of transaction is the US dollar.

 

Now if your name is James Edward Staley “Jes” and you are the newly installed American CEO of Barclays Bank, having been recruited from JP Morgan Chase, an entity that has seen its fair share of regulatory fines, what would you do with this institution that was founded on Quaker principles and appears to have lost its moral campus?  

 

This was what was going through my mind when the young boy with the lollipop nudged me to move forward and pay for my goods at the counter.

 

I don’t know about you, but one of the first things I would be tempted to do would be to reduce the sheer number of regulatory environments that I operate in, especially if they are deemed to be high risk environments. After all, I can always come back later when I’ve got my ducks in a row. I’ve done it before.

        

 

Level 4 (XP: 1050)
Thank you for this very educative piece. I recall a time when Barclays was THE bank in Uganda. I still have an account with them, probably more out of inherited loyalty than business calculation. In a sense, their departure is an end of a tradition - just like the disappearing swamps and reeds that I took for granted in my youth. Few things are permanent.

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