New year looks rosy for SA banking

It would take a lot to top the events of 2005 in South Africa’s banking sector. But indications are that 2006 could prove to be just as exciting.

Speculation is still rife that a second international bank could be looking to take out one of South Africa’s “big four” banks—something both the Minister of Finance, Trevor Manuel, and the South African Reserve Bank (SARB) have intimated they will not block.

When they gave the go-ahead earlier this year for United Kingdom group Barclays plc’s acquisition of a controlling stake in the country’s biggest retail bank, Absa, for an estimated R30-billion—the biggest foreign direct investment in South Africa to date—both the Treasury and the SARB hinted they were not ill disposed to allowing a second international bank to gain a stake in the country’s banking sector.

Provided, that is, it doesn’t upset the government’s four-pillar banking policy of having four major banks.

Among the international banks that have been mentioned as possibly being interested in taking over one of the “big four” are HSBC, Standard Chartered and Citi Bank.

Citi Bank and HSBC have remained mum on the issue, but Standard Chartered has made it clear from the outset that it might be interested in acquiring one of the country’s major banks.

HSBC has apparently fuelled speculation with a pending management reshuffle.
Reports from London suggest that it is planning to relocate one of its most senior managers to Johannesburg in the new year to head up a newly created role as head of Africa. However, this could not be confirmed.

Lloyds TSB Offshore, a division of the Lloyds TSB Group plc, which services UK citizens living abroad, is also planning to open a representative office in South Africa to run its African operations.

The UK bank says the move is aimed at boosting its offshore service on the continent that has become one of the most important sources of new business for offshore banking.

In another exciting development, international entrepreneur Richard Branson, who owns the Virgin Atlantic airline, is also planning to swoop on South Africa. 

The charismatic adventurer announced during a recent visit to the country that he is planning to take on South Africa’s financial industry with a low-cost alternative he is expecting to launch here next year. 

“The financial-services industry takes consumers for a ride in Africa ... they make exorbitant profits,” he told reporters, adding that he is also considering launching a broad-based financial service in countries such as Nigeria, Kenya, Uganda and Ghana.

Second look

Analysts say the success Barclays has had with Absa might be making a number of overseas banks take a second look at South Africa. They add that as political and economic stability have settled on the country, South Africa has become increasingly important in the global banking world in recent years. 

With relatively high interest rates and wide profit margins, it’s also viewed by many as a country of relatively easy pickings, as Barclays is already beginning to discover. Absa reported a 24,6% leap in headline earnings from R2,415-billion to R3,008-billion for the six months to the end of September.

Absa CEO Steve Booysen says the bank is on track to deliver pre-tax synergy benefits of R1,4-billion a year four years after completion of the deal.

Absa executive director Robert East, who is tasked with implementation of the Barclays/Absa deal, says the group is expected to deliver synergies ahead of the target date.

“We’re working well together. Good progress has been made against the plan and a number of early wins have already been achieved,” he says.

He added that restructuring spend—estimated to be about R1,8-billion—is expected to peak in 2006/07.

Phase two of the plan is being rolled out, which will see Absa acquire nine of Barclays’s African operations. The acquisition is expected to be completed within the next 18 months.

Says Booysen: “Absa’s expansion in sub-Saharan Africa has been conservative to date, but Africa will be a major focus area as part of the second phase of the Barclays transaction.”

The group recently strengthened its presence in sub-Saharan Africa through the acquisition of a controlling stake in Angola’s Banco Comercial Angolano.

Standard Bank

Standard Bank, another of the country’s so-called “big four” banks, is also looking to expand its already formidable presence on the continent.

Despite reports to the contrary, the bank says it is still in talks with Nigeria’s fifth-largest bank, Oceanic, regarding the latter acquiring Stanbic Nigeria—and Standard Bank, in return, acquiring a significant strategic minority shareholding in Oceanic.

It was originally anticipated that the transaction could be implemented by the end of this year, but Standard Bank says it was not possible to conclude discussions and meet all the necessary transaction and regulatory requirements by this date.

“As a consequence and in order to comply with the Central Bank of Nigeria’s minimum capital requirements of N25-billion [$189-million], Standard Bank will capitalise Stanbic Bank Nigeria with an additional $180-million,” the bank added.

Following the capitalisation of Stanbic Bank Nigeria, Greg Brackenridge, currently MD of Stanbic Africa, will assume direct responsibility for the group’s West African operations and will relocate to Lagos, Nigeria, it says.

Standard Bank is also in the process of acquiring ING’s Argentine operation, which will upgrade its representative office in Buenos Aires to a fully licensed bank. Since striking the deal, Standard Bank says it has received several approaches to increase its participation in the Argentine banking sector.

As part of a consortium that includes the Werthein and Sielecki families of Argentina, it is also in talks with regards to the potential acquisition of the BankBoston Argentina branch from Bank of America.

With all this happening, 2006 is bound to be quite an exciting year in banking.—I-Net Bridge

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