Absa’s big brother Barclays announced on Monday that it had agreed to merge with The Netherlands-based ABN Amro to form the world’s fifth-largest bank. The deal will enhance Absa’s competitiveness. But on Wednesday, its rival Royal Bank of Scotland (RBS) launched its own takeover bid.
Barclays will pay £45-billion for ABN Amro, and will see its offshore profits leap from 50% to 70% if the deal is successful.
The Royal Bank of Scotland has trumped Barclays’ bid and said its consortium would pay â,¬39 a share for ABN Amro, against Barclays’ â,¬36,25, which was accepted earlier in the week. RBS is leading a consortium of three banks. Its other partners are Belgium’s Fortis and Spain’s Santander. According to The Guardian, this offer is 13% higher than Barclays’ offer.
Absa accounted for 9% of Barclays’ profits last year, said spokesperson Alistair Smith. This probably represents about 6% of the companies’ combined 2006 profit before tax, he said. Absa would still be a significant part of Barclays’ operations and, before the ABN Amro deal was mooted, it was the largest single offshore transaction Barclays had taken on.
Most local analysts were confident that the merger would not affect Barclays’ plans for Absa, of which it owns 56% in a deal that is still being tied up. The consolidation has been under way for some time and is largely a local office function, said a commentator. But the deal is seen as a good thing for Absa clients, who will now be part of a global network. Absa would also potentially be able to access cheaper rates when borrowing capital.
Absa’s group chief executive Steve Booysen said Absa Capital would be placed in a favourable position. “We will be able to leverage off the emergence of the world’s largest institutional asset manager,” he said in a statement. Absa Private Bank would also benefit, the statement said, as the new entity would create the world’s eighth-largest wealth manager.
ABN Amro has a limited presence in Africa. However, it has operations across South America and Asia, which Barclays will be eyeing. Barclays’ operations in Africa are already being transferred to Absa’s control, and the ABN Amro deal is unlikely to affect this.
About 12 800 jobs would be shed from the combined workforce, while 10 800 would be moved from the United Kingdom to cheaper locations. Barclays declined to comment further on the job cuts. South Africa successfully claimed some of this outsourcing previously, although the bulk of these jobs have tended to go to India.
South Africa shares a similar time zone with the UK and The Netherlands. Both countries can boast skilled workers who are proficient in English. “We’re cheaper than the UK but not as cheap as India,” summed up Chris Steward from Investec. South Africa also has a first-world banking sector.
Absa’s share price reached an all-time high before dropping back on Tuesday, but a dealer said this was a function of a strong market generally and was unrelated to the announcement. In the past nine days, it has gained about R12 as market sentiment remained high. It closed at R147,95 on Tuesday, a day after the deal was announced, from R148,30 on Monday.
On the cards
The relaunch of a Barclays branded credit card set analysts speculating on the future of the Absa brand. Will Absa’s identity be replaced by Barclays? Only time, and Barclays, will tell. In the meantime, Absa expects the Barclaycard to make an attractive addition for existing customers.
Barclaycard and Barclaycard Prime: The Barclaycard Classic card is aimed at customers earning between R250 000 and R500 000 a year. It offers 57 days’ interest-free credit, in addition to the usual credit-card facilities, electronic statements and text alerts for a flat monthly fee of R35. Purchases are charged at 16,9% interest, cash withdrawals are charged at 20%, and interest on credit (when your card shows a positive balance) is given at 2%.
The Barclaycard Prime is aimed at customers who earn R500 000 a year or more. It offers the same benefits as the ordinary card, with some additional goodies. Identity theft assistance, trauma assistance, airport lounge access and a full concierge service. But the fee is higher: R55 a month. Purchases on the Barclaycard Prime are charged at 15,9%, cash withdrawals at 20%, and 5% is given for credit balances. Transactions and additional cards are free.
Absa Platinum and Absa Private Bank credit cards: Of Absa’s offerings the Absa Platinum card charges a “competitive” debit interest rate and gives 3,5% interest for credit balances. It is aimed at customers earning R25 000 a month. It offers 50 days’ interest-free credit, free additional cards including a global calling card and a smart tag facility for use at BP petrol stations. Lost-card protection, travel insurance and insurance on the outstanding balance in the event of death. The fee for this card is R30 a month.
Card holders get 50 days’ interest-free credit and “preferential” interest rates. Absa doesn’t disclose what these interest rates are on its website.
Although flat monthly fees are charged for both cards, the Absa website does not make the cost of the cards clear. To qualify for these cards, you must earn above R500 000.
So which one’s better? Without the interest rates and charges, it’s difficult to make an informed decision. The Barclaycard has a lower threshold (R250 000 compared with R300 000) and includes several extras, but the monthly fee is higher. But, the Prime card pays a better rate on credit balances, compared with the Private Bank offering. Both Barclaycards offer a longer interest-free period. On balance, I’d probably opt for the Barclaycard. — Jocelyn Newmarch