Will Bob Diamond Derail Barclays PLC’S African Ambitions?

For all the travails of Barclays (LSE: BARC) (NYSE: BCS.US) in recent years – the scandals, the executive witch hunts, the questions over its capital raising in the midst of the financial crisis, and the super-generous pay at its misfiring investment bank – one part of the Barclays’ story has remained untarnished and exciting.

And that’s Barclays Africa, the company’s huge presence in arguably the world’s last great frontier market.

Created in 2013 out of the merger of the South African-based banking giant Absa Group (which was already part-owned by Barclays) and its other operations in the region, Barclays Africa now generates roughly 15% of Barclays’ total adjusted income.

And while the unit has faced increased competition and suffered from adverse currency swings recently, there’s little doubt that Barclays Africa is of immense strategic importance to the embattled banking behemoth.

Out of Barclays, into Africa

All of which must surely mean the latest manoeuvres of Bob Diamond, the bank’s former CEO, are causing a few raised eyebrows in the Barclays’ boardroom.

Diamond quit in 2012 in the wake of the LIBOR-rigging scandal, although it’s fair to say he was pushed as much as he jumped. But if Barclays’ shareholders thought a new broom would do a better job of cleaning up their bank than ‘Diamond Bob’, they surely didn’t reckon with the old one cleaning up in their own backyard.

barclaysJilted Diamond returned to the public markets last year with Atlas-Mara, a briefly listed cash vehicle that raised $325 million – including $20 million of Diamond’s own money – with a remit to build a pan-African banking giant.

Diamond teamed up with 30-something African billionaire entrepreneur Ashish Thakkar to hunt for takeover targets, and last month swooped for not one but two banks – BancABC, which has operations across the various countries of the South African Development Community, and ADC African Development Corporation, a Frankfurt-listed bank that itself owns a huge share of BancABC as well as interests in a Nigerian bank and a variety of private equity investments in financial services.

By acquiring BancABC (and incidentally knocking out a potential rival with the acquisition of ADC), Diamond now has the backbone of his African operations.

Trading in Atlas-Mara shares has been suspended pending completion of these deals – but in the meantime the company has also signed a Memorandum of Understanding with the Government of Rwanda to pursue a privatisation of its State-owned development bank. This would give Atlas-Mara a foothold in East Africa, too.

Barclays might be forgiven for wondering exactly what they have unleashed in their most promising growth market by letting Diamond go.

Poaching a gamekeeper

It’s perhaps not surprising that Bob Diamond has turned to Africa for the next chapter of his career. He played a part in creating Barclays Africa, and he’s canny enough to see that traditional investment banking in the West – the other venue that might have beckoned – isn’t as conducive to money making on a grand scale as it was a decade ago.

However, Barclays may be wondering if Diamond is taking things personal, given the latest hire to his fledgling business. In looking around for someone to manage his mushrooming African banking empire, Diamond has alighted on John Vitalo, a veteran of banking operations on the continent, and a man who Diamond has enjoyed working with before.

You see prior to his hiring by Atlas-Mara, Vitalo was CEO of Barclays’ Middle East and North African division! And before his appointment to that role in 2009, he was top dog at Absa Capital, the bank that Barclays merged with to create Barclays Africa.

While Atlas-Mara shareholders will want to study carefully the terms under which Vitalo has been hired (a big minus point for me with respect to Diamond’s start-up is that all the founders have exceptionally generous pay packages, and I’m sure this will extent to the new CEO), Barclays’ shareholders might feel entitled to ask whether their own bank has a plan to counter the emerging threat from Diamond.

Will he poach more top staff? Will he pip his old employer to the most lucrative new opportunities? This is one situation worth keeping an eye on…

Atlas-Mara’s manoeuvres in Africa have to-date been more akin to private equity than traditional banking, but it pays to know the difference if you’re looking to invest in the sector. Barclays is the bigger and ostensibly safer bet, but Atlas-Mara has none of the legacy issues that still dog its massive rival.

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