What was happening to South Africa’s four pillar policy?


That was the question being asked when Barclays Bank decided to buy the controlling in stake in ABSA, one of the country’s four largest banks. Up until then, the government had what was called a “four-pillar” policy which reflected its preference to keep a minimum of four large banks relatively competitive, healthy and South African-owned.

The big four were Standard Bank, FirstRand, Nedcor, and ABSA.

Tito Mboweni, who was reserve bank governor at the time, admitted that nothing remained stable. The government might have to reconsider its policy.

Nedcor’s majority shareholder, Old Mutual, had already moved its primary stock listing and headquarters from South Africa to London.


Full cable:



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Reference ID





2004-10-14 13:12


Embassy Pretoria

This record is a partial extract of the original cable. The full text of the original cable is not available.







E.O. 12958: N/A





1. (U) Summary. President Mbeki has publicly given his

support for Barclays Bank’s planned bid to purchase a 50.1%

stake in ABSA, the fourth largest bank in South Africa.

While Finance Minister Trevor Manuel has the final say,

Mbeki’s support certainly paves the road for approval. The

acquisition represents a clear departure from previous

government policy to keep the four large banks South African

owned. Industry insiders believe that Barclays’ takeover of

ABSA will be positive for South Africa, but are not sure that

it will lead to more competition and thus lower banking fees

as the government and consumers would like. Some local labor

and political organizations have voiced reservations about

potential job cuts and capital leaving the country, but

neither of these events is likely to happen in this case.

End Summary.


Barclays’ Interest in ABSA Goes Public



2. (U) On September 23, Barclays confirmed its intention to

purchase a 50.1% stake in ABSA, the fourth largest bank in

South Africa, for R20 billion (approximately $3.1 billion).

ABSA’s board has reportedly accepted Barclays’ bid in

principle, but a final offer will not be made until South

African Reserve Bank (SARB) regulators approve Barclays’ bid,

and Barclays can complete due diligence on ABSA. Due

diligence will determine Barclays final offer price and

percentage stake. It will then be up to ABSA shareholders to

accept Barclays’ offer, Barclays’ shareholders to approve the

deal, and South African Finance Minister Manuel to give a

green light.


3. (U) Several weeks before Barclays emerged as ABSA’s

suitor, as Barclays talked to Sanlam about its 21.3%

shareholding in ABSA, rumors abounded about a foreign

takeover of a local bank. On September 23, Barclays and ABSA

came clean with the announcement that, indeed, they were

talking to each other. Sanlam, a South African financial

services company, is ABSA’s leading shareholder. Sanlam also

relies on ABSA retail outlets to market its insurance

products, a practice it would want to continue after Barclays

takes over.


4. (U) U.S. financial advisors are involved in the

acquisition. JP Morgan is advising Barclays, while Merrill

Lynch and Goldman Sachs are advising ABSA. The acquisition

of ABSA would be the largest investment outside of the United

Kingdom for Barclays, and the largest single foreign

investment in South Africa since 1994.


No Rivals



5. (SBU) The press has suggested that Standard Chartered

(U.K.) or Hong Kong Shanghai Bank Corporation (HSBC) (U.K.)

might be rival bidders for ABSA, or might be interested in a

different South African bank — but neither has publicly

indicated any such interest. In fact, Standard Chartered

flatly stated that it did not plan to place a competing bid

on ABSA. Industry insiders that we contacted see no

indication that either Standard Chartered or HBSC are serious

about a South African acquisition at this time.


The Road is Paved for Barclays



6. (U) The road is paved for approval of Barclays’ bid.

Before going public, top executives from Barclays met with

President Mbeki to ask for his blessing. They assured him

that Barclays would live up to ABSA’s black economic

empowerment commitments under the Financial Sector Charter,

and that Barclays was coming to South Africa for the long

haul. Satisfied with Barclays’ good intentions, Mbeki

immediately trumpeted Barclays’ move on ABSA as an indication

of strong foreign investor confidence in South Africa, and as

vindication that his macroeconomic stabilization and social

transformation policies were working. Publicly, Finance

Minster Manuel and SARB Governor Tito Mboweni have had

nothing negative to say about the deal, leading to the widely

held presumption that nothing is standing in the way.


What is Happening to the Four-Pillar Policy?



7. (U) Consolidation of the South African banking industry

during the past decade culminated in what is known as the

government’s “four-pillar” policy, i.e., the government’s

preference for keeping a minimum of four large banks

relatively competitive, healthy, and South African owned.

The big four are Standard Bank, FirstRand, Nedcor, and ABSA.

SARB Governor Mboweni recently reiterated the government’s

“preference for the big four South African banks to remain in

South African hands,” but had to admit that “nothing remains

stable.” He confessed that the Treasury and the SARB would

have to consider modifying the policy at some point. Some

would argue that the policy lost its luster after Nedcor’s

majority shareholder, Old Mutual, moved its primary stock

listing and headquarters to London from South Africa. Old

Mutual is an international financial services group with

strong South African roots (where it still derives most of

its income) that has maintained a secondary listing for

itself on the JSE Securities Exchange and a primary listing

for Nedcor. If there was any doubt before as to whether the

four-pillar policy was standing, Barclays’ takeover of ABSA

should clear it up. The policy will have to change.

8. (SBU) The question is, “How much?” Given that two of the

four major retail banks in South Africa are foreign owned,

will the government close the door to future foreign

takeovers, or leave the door open? Industry insiders do not

think that the government will allow another foreign takeover

of a big bank after ABSA, but this may depend on how and why

Manuel chooses to approve the Barclays deal. We will be

watching to see whether he leaves the door open for other

foreign banks to compete in South Africa, and to bring more

capital to the country.


Some Reservations, but Industry is Supportive



9. (U) Media reports suggested that Barclays would have an

unfair competitive advantage in South Africa if no other

foreign banks were allowed in, but most banking industry

officials do not seem to be worried. Indeed, stock prices in

all banks got a shot in the arm on news of Barclays’ bid.

Many in the private sector are hopeful that increased

competition among the big four will bring down the high cost

of local banking and make the whole economy a bit more

competitive. Currently, South African banks derive about

half their income from banking fees, far more than in more

developed markets. The acquisition is also seen as good for

South Africa, as it encourages more foreign investment.


10. (SBU) A U.S. bank executive held reservations about

whether it was a good idea for Barclays to leak news of the

deal so soon. ABSA shares have been increasing in value ever

since and this only made the deal more expensive. The

executive also questioned the logic of buying a South African

bank at a time when the rand was overvalued. The rand has

appreciated 16% against the British pound and 25% against the

U.S. dollar since January 2003. However, this may not be the

issue it appears to be. SARB Governor Mboweni recently

suggested that Barclays might not need many British pounds to

purchase ABSA. He pointed out that the actual foreign

exchange inflow “might be disappointing” because Barclays

could finance much of the purchase through rand holdings that

it has accumulated over time. This would take pressure off

the SARB to “mop up” excess foreign exchange in an effort to

keep the rand from appreciating further.


What Will Happen to ABSA and its Employees?



11. (U) Some local labor and political organizations voiced

reservations about job cuts after mergers and the potential

of capital leaving the country, but neither of these events

is likely to happen in the case of ABSA. ABSA’s CEO, Steve

Booysen, stated publicly that the deal was “about growth and

leadership, not retrenchment” or capital leaving the country.

He pointed out that there was little overlap between ABSA’s

and Barclays’ Africa business )- with the only overlap in

the areas of corporate and investment banking in South

Africa, Tanzania, and Zimbabwe. A Banking Council official

echoed this sentiment, noting that the acquisition was more a

transfer of ownership than a merger. Moreover, Barclays has

a small number of employees in South Africa, making the

likely solution to any redundancies the shifting of employees

to other areas.


12. (U) In 1986, Barclays disinvested from South Africa,

leaving behind what later became First National Bank, now

owned by FirstRand Limited. Barclays returned in 1995 as a

much smaller entity, focusing on corporate and investment

banking, and on wealth management. Barclays now has 400

employees in South Africa, compared to 6,900 in all of

Africa. At this time, no one knows whether Barclays will

retain the ABSA brand in South Africa, where it is well known

on the retail level. ABSA, with Afrikaner roots, is the

largest retail bank in South Africa, employing 32,000.

Barclays is well known internationally and is locally strong

in corporate banking and credit cards.





13. (SBU) It is difficult for South Africans to argue against

Barclays’ acquisition of ABSA, as it has Mbeki’s blessing and

represents a very large, high profile foreign investment for

the country — increasingly important to a government that

wants to grow the economy and reduce high unemployment.

Whether it brings more competition to the banking sector and

along with it lower banking fees is another question. The

private sector would like to see that happen, but is not

convinced that Barclays will not simply join the clubby

profitability of the big four. For its part, the government

would like to see banking services more affordable, both for

economic competitiveness reasons and to make services more

accessible to the large “unbanked” population in South

Africa. Other unanswered questions concerning the

acquisition revolve around what Barclays will do with the

ABSA brand, and how the government might modify its

four-pillar policy. Will Barclays’ purchase of ABSA open or

close the door for future foreign acquisitions of South

African banks?




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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.


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