WHEN Barclays bought a majority stake in Absa for £2.4 billion last year after eight months of wrangling with the Government, regulators and shareholders, there was a degree of scepticism about the benefits of the deal. Although Barclays was buying a majority stake in the biggest retail bank in South Africa, with eight million customers, analysts were doubtful about the acquisition.

Jacques Schindehutte, group financial director at Absa, says that the benefits of Barclays’ ownership were noticed instantly at the group’s headquarters in the business district of Johannesburg. The acquisition has also begun to pay off for Barclays. Absa’s interim pre-tax profits for the six months to September 2005 rose 24 per cent to £360 million.

Immediately after the deal, which was completed last May, Absa’s credit rating improved from AA to AAA, lowering its cost of financing and enabling it to be more competitive. “It is a no-brainer that we have been able to do so much better since the deal. The superior rating has improved our funding costs. The market has also given us a lot of credit in advance for the improvements we expect from the deal,” Schindehutte says.

“It has meant a lot for our confidence. As our human resources director would say, it has given us a certain swagger, but let’s hope that doesn’t spill into arrogance because we need to remain humble.”

As well as improving the bank’s rating, being part of the wider Barclays group means that Absa can use the British bank’s muscle to obtain better deals from suppliers. Especially in IT, the bank has managed to renegotiate existing contracts to make them cheaper.

Barclays has brought with it more sophisticated credit- scoring capabilities, which has helped Absa to exploit South Africa’s housing boom. Along with these financial benefits, the transaction has forced Absa to improve its performance and meet exacting international business standards.

“We have not been used to having a shareholder of substance. It has focused the mind and made us say we have a new view on life, new expectations and a party who have got their whole reputation riding on these expectations. It has lifted our game and there is an excitement now within the group,” Schindehutte says.

“We were very worried in the early days that people would be concerned about the deal, but by and large the leadership has been left untouched and we are now proud of being part of Barclays. You will get the sense that the honeymoon is still on.”

Fears of a backlash over Barclays’ involvement with the apartheid regime also proved unfounded, Schindehutte says: “It is a non-issue. The white population said Barclays deserted us; the black population said Barclays stayed too long and supported the regime. None of those were right. You would be surprised how strong the Barclays brand is in South Africa, even in the farmer population. To the white guys it is not an issue and the black guys are falling over their feet to put their money with us.”

Riah Phiyega, Absa’s head of public policy, agrees: “The best thing that could have happened to this country is Barclays coming back. After leaving, they have told the world that it is OK to invest in South Africa again. People talk about protests, but there were phone-ins on the radio telling people to shut up, saying: ‘What are you doing? What we need as a country is this investment’.

“People in the communities are expecting big new products, invigorating the market, and they are saying: ‘What is happening? What are the opportunities?’ We are part of the global community now.”

Backing for the deal from President Mbeki was important for winning support in the black community. “The President made positive comments about this deal in the townships; that endorsement means people are more proud about being associated with the bank,” Schindehutte says.

Absa’s drive to transform its staff and client base and to improve black representation has helped, as well as the agreement to allocate 10 per cent of its shares to Batho Bonke, a consortium part-owned by Mvelaphanda, the black empowerment investment group.

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