Absa first got wind of its British parent company Barclays’s plan to sell it off in an article in London’s Financial Times (FT) in 2016. Just three months before the news piece was published, the UK banking group had been pressuring Absa to finalise the rebranding of its banks in the rest of Africa under the Barclays brand. The official announcement from Barclays soon followed and set the stage for a protracted divorce that will only be completed in 2020.
Absa chair Wendy Lucas-Bull said at the bank’s AGM on Tuesday that the bank has passed the halfway mark in the separation process, having moved all its regional bank’s core banking systems from the UK to SA in April. All digital systems were moved in May.
But getting there took a lot of fighting and if it wasn’t for former CEO Maria Ramos’s astute negotiating, Absa might have walked away from Barclays’s initiated divorce with only the clothes on its back.
“The first time we heard about it was in the FT. And clearly what that meant for us was that we knew we were going to have a very tough divorce negotiation,” Lucas-Bull said.
She said Barclays was initially not prepared to pay the costs that Absa would incur in moving its operations from the centralised Barclays systems. The volume of work Absa had to do to move its banking systems from London to Johannesburg, and the cost to rebuild the capacity it had relinquished due to centralisation at Barclays, would have hit the bank’s balance sheet hard if it had to finance it. Barclays’s argument was that as a listed company, Absa should be able to raise capital by issuing more shares.
We expect it [the settlement] to be cash-flow and balance-sheet neutral over time
— Absa chair Wendy Lucas-Bull
With Ramos acting as chief negotiator, Barclays agreed after much arguing that it would pay Absa £765m to finance the separation of the two banks’ systems. Barclays paid the amount upfront, which benefited Absa as it is earning interest on it.
Lucas-Bull said this was Absa’s biggest victory as it allowed the bank to reset itself and fund the “Africanacity” strategy it unveiled in December 2018.
Despite all the value-adds and re-engineering of its systems, Absa said it has not had to invest its own money to manage the separation or rebrand itself.
“But we expect it [the settlement] to be cash-flow and balance-sheet neutral over time,” Lucas-Bull said, adding that the bank excludes the interest it earns on the settlement or the return on earnings it receives from additional capital investment on its normalised earnings.
The big victory was secured and big-ticket items have been ticked off, but Absa still has some way to go before achieving a clean break from Barclays. Its regional banks in the rest of Africa still carry the Barclays brand. The bank has until mid-2020 to rebrand them.
In SA, the key remaining milestones are the migration of the corporate and investment banking systems, including trading platforms, from London to Johannesburg. The bank is also yet to move its human resources system.
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