Barclays' split from African subsidiary could cost between £500m and £1bn, analyst estimates

Barclays' split from its African arm could cost the British bank between £500m ($409.56m) and £1bn, Manus Costello, a banks analyst at Autonomous, has estimated.

Barclays CEO Jes Staley had announced in March that the bank planned to reduce its stake in its Africa business as part of his strategy to turn around the bank. Barclays hoped the move would increase shareholder return, minimise the risk associated with a volatile market and shore up its balance sheet.

The bank used to own 62.3% of the Johannesburg stock exchange-listed Barclays Africa Group Limited (BAGL). While Barclays sold a 12.2% stake in May in the African subsidiary for £603m, it continues to hold about 50% stake, worth £3.7bn.

The subsidiary depends on Barclays for a range of services including technology, branding, human resources, credit risk management, strategic development and operational management support. Hence, splitting from BAGL will require the UK parent to break the master services agreement between the two. Barclays is said to require negotiating a replacement services agreement and get it approved by regulators.

This, Costello said, could prove expensive for Barclays. He estimated the split cost of up to £1bn by extrapolating the £210m that cost Lloyds Banking Group to separate its TSB unit in 2014.

"Breaking up is hard to do...We believe that Barclays will have to enter into a separation agreement with BAGL which might prove expensive," Costello was quoted as saying by the Financial Times.

Barclays too had earlier said that a split from its Africa business could cost it more than expected. It had, however, not put a figure to it. In a circular to shareholders ahead of this year's annual meeting, the bank said it would need to co-operate with BAGL to ensure an "orderly transition of the operational support and other services".

Warning that this process could not only cost it more but could also take longer to implement, Barclays said: "Termination costs would be payable by Barclays in the event of its voluntary termination of the Barclays master services agreement...These costs are not yet determinable as they would need to be agreed with Barclays Africa management."