HSBC to challenge Standard Bank in Africa push
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Emerging Markets

HSBC to challenge Standard Bank in Africa push

HSBC’s African expansion bid could outcompete the likes of Standard Bank, the head of Nedbank, a HSBC acquisition target, has claimed

The African banking landscape is set to be shaken up with the expected entry of HSBC into South Africa, after it launched a $7 billion offer for 70% of Nedbank last month.

Mike Brown, chief executive officer of Nedbank, told Emerging Markets that HSBC’s corporate and retail franchise, that will connect emerging market investors around the globe, would give it competitive advantage.

“HSBC is a powerful global network and would be linked to a domestic franchise,” Brown said.

This platform would allow the financial institution to “connect” emerging market corporate clients, operating in the commodity-rich region.

The comments come as domestic and global banks mull expansion opportunities in the world’s last frontier region.

The Industrial and Commercial Bank of China in 2007 acquired 20% of Standard Bank, to much fanfare, amid expectations of high deal volumes thanks to rising trade flows between Asia and the resource-rich continent.

But Jacko Maree, chief executive officer of the lender, has recently expressed disappointment over the lack of revenue generated by the partnership, at $38 million in the six months to end-June. This sum is down from $47 million a year earlier.

Nedbank provides a vehicle for HSBC to leverage its global franchise to provide clients operating across Latin America, Russia and Asia with foreign exchange, letters of credit and cash management services, among other business streams, Brown said.

The takeover is facing regulatory hurdles as insurer Old Mutual, which owns 51% of Nedbank, intends to use the proceeds of the sale to pay down debt, potentially falling foul of South Africa’s foreign exchange controls.

In addition, protectionist sentiment is rising, amid political infighting within the ruling African National Congress. Brown said, although for all intents and purposes, “Nedbank is already effectively foreign owned”.

HSBC at present only has five branches in South Africa and employs 200 people. But the takeover would give the global bank at least 443 retail branches, a 27,000 workforce, an investment banking arm – and a foothold on the continent.

Nedbank’s African coverage is limited to Lesotho, Swaziland, Zimbabwe, Malawi and Namibia and is invested with EcoBank, a pan-African banking group. But Brown said Nedbank’s primary focus would be to beef up its retail and commerical banking presence in South Africa, as 90% of the profit from African financial services comes from South Africa-based operations.

Meanwhile, HSBC’s huge debt and equity distribution capabilities as well as mergers and acquisitions expertise gives the lender the firepower to quickly grab a share of the investment banking pie for deals originating from African clients.

Africa’s lack of integration in the global economy and the limited nature of corporate investments, principally telecommunications, has traditionally constrained global bank expansion. A large number of commodity deals are, meanwhile, capitalized by state financing, bypassing commercial banks.

However, Africa’s economic rebound, rising income levels and capacity to grow its financial system from a low base have galvanized lenders with the balance sheets to expand.

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