Barclays Plc said it will sell down the stake in its Africa business, cut its dividend, and move more assets into its non-core unit as Chief Executive Officer Jes Staley laid out his strategy for the U.K.’s largest investment bank.
The lender will sell down its 62 percent stake in Barclays Africa Group Ltd. over the next two to three years to a level that allows it to deconsolidate the business, according to a statement Tuesday.
Fourth-quarter adjusted pretax profit, including restructuring costs, fell 56 percent to 247 million pounds ($344 million), according to the filing. That missed the 519 million-pound average estimate of five analysts surveyed by Bloomberg.
The moves are meant “to accelerate our strategy and simplify the group, as we prepare for regulatory ring-fencing requirements,” Staley, 59, said in the statement.
Staley is counting on his first results announcement and a revised strategy to reassure investors, who have been demanding bold moves to boost capital and returns as the bank languishes at its lowest valuation in more than three years.
In addition to selling down the African stake, the CEO has moved to address the underperforming investment bank. He previously announced 1,200 job cuts, the exit from seven countries in Asia, a hiring freeze and cutting the bonus pool to trim costs. The shares fell 7.6 percent at 8:28 a.m. in London trading. The stock has dropped 27 percent so far this year.
The African business had 9.5 percent of the bank’s risk-weighted assets at the end of 2015. Barclays has operated in the continent for almost a century and its stake in Johannesburg-based Barclays Africa Group Ltd. was built up under former CEOs John Varley and Robert Diamond.
“BAGL is a well-diversified business and a high quality franchise,” Staley said in the statement. “However the stake in BAGL presents specific challenges to Barclays as owners, such as the level of capital held in respect of BAGL, the international reach of the U.K. bank levy” and other reasons.
The divident cut
The company also cut its dividend to 3 pence per share for 2016 and 2017, from 6.5 pence last year. Ian Gordon, an analyst at Investec Bank Plc, had estimated the dividend would remain flat in 2016, while Raul Sinha at JPMorgan Chase & Co. had said shrinking the investment bank by 30 percent could fund an increase in the payout.
The dividend reduction, along with the African business move, will boost the firm’s common equity Tier 1 ratio by at least 1 percentage point, the company said. That measure was 11.4 percent at the end of 2015, up from 10.3 percent a year earlier.
Reducing the dividend for 2016 and 2017 was a “very difficult decision to make,” but will allow the bank to speed the shedding of non-core assets, Staley said in an interview with Bloomberg Television.
The CEO said the bank will get back to paying out “significant” percentage of profits in a dividend in 2018. “The dividend cut is justified, given the major restructuring ahead,” said Sandy Chen, an analyst at Cenkos Securities with a buy rating on the stock.
“No doubt the market won’t like the income miss, but trading at 0.5 of book value, this isn’t an expensive price for a decent future.”
The company added 8 billion pounds of risk-weighted assets to its non-core division, bringing the total to 55 billion pounds, and said it will speed up divestment of assets in that unit to reach 20 billion pounds by 2017. The businesses being transferred to non-core are wealth-management units in Asia and the Americas, units in at least nine countries including Egypt and Zimbabwe, and certain product lines in the investment bank.
Staley also unveiled a new structure for the lender, splitting it into two divisions to comply with U.K. law requiring the separation of banks’ consumer and investment banking arms by 2019.
The so-called U.K. ringfenced retail bank will have about 70 billion of risk weighted assets, whereas the non-ringfenced business, called Barclays Corporate and International, is almost three times as large with about 195 billion pounds of assets, according to the statement. It will house the investment bank, wealth management and the U.S. and international cards business.
“Focus will be on the new strategy with CEO Jes Staley laying out a clear roadmap to a much better capitalised and simplified group through the sell down of Barclays Africa and expansion of Non-Core,” Sinha of JPMorgan wrote in a note to investors Tuesday. Staley “can move Barclays away from being a value trap by allocating capital away from the investment bank, which is a sub-6 percent ROE business.”
The stock has fallen each of the past two years, leaving the bank trading at less than 50 percent of its book value. In July, Chairman John McFarlane, 68, pledged to double the share price over the next three to four years.
Barclays took another 1.45 billion-pound charge for improperly sold payment protection insurance in the fourth quarter, increasing the total cost of compensating customers for the scandal to about 7.5 billion pounds.
Matambo calls on financial sector to pick GDP
Finance Minister Kenneth Matambo has announced that government is committed to support financial service sector to prop up the country’s Gross Domestic Product (GDP).
Currently contributing over 13 percent to GDP, Matambo said the sector has potential to increase its share. “Hence government’s interest in the sector,” said Matambo addressing delegates at the inaugural Botswana Insurance Holdings Limited (BIHL), Global Financial Summit.
The country has built a strong, resilient and fast growing financial sector underpinned by a robust regulatory framework. The finance minister who is expected to step down next year, noted that government’s commitment to the financial service sector has this year been buttressed by a number of laws passed in July relating to money laundering activities.
In addition, Matambo said the continued investment in the development of information, communication and technologies (ICTs) backbone infrastructure is also to support local banks’ rising appetite for online services.
The Minister said the country remains committed to maintaining micro-economic stability to spur private sector participation in the economy. “Our vision is to become a high income country by 2036,” said Matambo, challenging the private sector to step forward and help government to develop the country, bemoaning the low levels of financial inclusion and shallow domestic capital markets.
He said the private sector should come up with more initiatives to develop further the local capital markets. The Minister’s sentiments were also shared by Martin Davies, Managing Director for Emerging Markets and Africa at Deloitte who has challenged the country to start dealing with its low manufacturing value add.
“How do we start to diversify beyond the single commodity economy,” quizzed Davies, adding that manufacturing increase is vital for low inequality across the country.
“Inequality results in bad public policy, as the state starts to believe and think they have to intervene more,” said Davies, highlighting that the country needs to move away from the absolute concept of state drive growth. Meanwhile, minister Matambo has applauded the private sector for leading economic dialogue in the country through events such as the BIHL Global Finance Summit.
First Lady advises women entrepreneurs
First Lady, Neo Masisi has urged women entrepreneurs to bring change in the economic development of the country and the rest of Africa.
Speaking during the Lioness Lean in Africa breakfast on Friday, Masisi said women entrepreneurs are remarkable engines of economic growth and job creation. “I believe women entrepreneurs hold incredible potential and credentials on the continent because Africa has the highest percentage of women entrepreneurs in the world.
It is projected that millions of much needed jobs will be created over the next decade and these will be created predominantly through small businesses which are mostly run by women,” said Masisi.She highlighted that women entrepreneurs are also the most powerful engine for equitably distributing growth and they are also solutions for addressing inequality on the continent.
“It is a proven fact that for many generations, women understand the simple concept of barter and commerce. These are the role models of our past and our present and they will continue to inspire new generations to do more for business to grow,” she said.
The Lioness Lean In Breakfast Series brings together inspirational and successful women entrepreneurs to share, inspire and connect with the next generation of great women-led start-ups.
The platform is based on a breakfast networking and speaker presentation format, which has been organized in locations across the African continent for the past year by Lionesses of Africa, empowering over one million women entrepreneurs across the continent.
Stanbic Bank Botswana Head of Personal Markets, Omphemetse Dube said they are pleased to bring the Lionesses of Africa Lean In platform to Botswana once again to bring together women entrepreneurs in the country and help to nurture their growth further.
“Botswana is blessed with a number of thriving female entrepreneurs, and the potential for the next generation of talent is strong. Platforms such as this are therefore paramount in growing the cause and we as a bank are proud to help champion that movement further,” said Dube.
Founder and CEO of Lionesses of Africa,Melanie Hawken noted that Gaborone is a growing and exciting centre for women’s entrepreneurship in Africa. “This is a must-attend event for women entrepreneurs in the country as it gives them the opportunity to hear the inspiring entrepreneurial stories of women who are building great businesses here,” she said.
The annual Lionesses of Africa event allows entrepreneurs to benefit from the insights and advice of women entrepreneurs who have seen and experienced it all and to also provide an excellent opportunity for networking.
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