In an effort to boost operations across Africa,
) is all set to augment its stake in Absa Group - the bank's
South African subsidiary. The British banking giant will also
unite the majority of its African divisions with those of the
Absa. The agreement is anticipated to be completed in the first
half of 2013, subject to the approval of Absa's minority
stockholders as well as regulatory authorities.
As per the terms of the deal, Barclays will receive shares worth
$2.1 billion in Absa. This will raise the company's stake in the
latter to 62.3% from the present 55.5%.
Subsequent to the completion of the deal, Absa will be renamed
Barclays Africa Group and will include Barclays' businesses in 10
African nations. However, Barclays will retain the retail banking
and card business segments in South Africa under the Absa brand
Back in 2005, in an effort to venture into developing markets,
Barclays acquired its initial stake in Absa for roughly a sum of
$4.4 billion. In 2011, Africa accounted for 21% of Barclays'
profit before tax.
The combining of operations in the 10 African countries is
anticipated to make Barclays' African operations more organized
and efficient. Further, it will likely be favorable to the cost
and risk management of Barclays' African unit. This will
facilitate Barclays to gain from the growth prospects of the
region reflecting the strategic expansion of the corporate and
retail banking segments in the long-term.
Currently, African operations are facing a number of headwinds
mainly owing to tough macroeconomic environment, which resulted
in South African banks being exposed to the worsening
asset-quality along with weak revenue streams. Further, South
African residential mortgages' high loan impairment charges are a
cause of concern.
Majority of the global banks are currently struggling to bolster
revenues amidst the gloomy macro-economic factors and Eurozone
crisis. Barclays has adopted several strategic initiatives, such
as diversifying their footprints in emerging markets, to counter
these issues. We believe that such initiatives augur well for the
company going forward.
Barclays currently retains a Zacks #3 Rank, which translates into
a short-term Hold rating. Given the stressed operating
environment, we believe that any significant improvement in its
earnings in the upcoming quarters would remain elusive. However,
prudent business model changes may improve the company's
efficiency and add to its competitive edge. In the same industry,
HDFC Bank Ltd.
) retains a Zacks #1 Rank (a short-term Strong Buy rating).
BARCLAY PLC-ADR (BCS): Free Stock Analysis
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