THE money laundering and interest rate-fixing scandals
affecting HSBC and Barclays will certainly prompt the South African Reserve
Bank (Sarb) to intense investigation of foreign banks that want to acquire some
of South Africa's top banks.
The Sarb, which is the banking regulator with the power to
approve or reject acquisitive transactions, will most probably be more wary of
banks from London, now dubbed the city of huts, than in the past few years.
This month alone, this city has been hit by more than two
major banking scandals involving a bank which has a direct link to South
Africa, Barclays, and another which wanted to enter South Africa a few years
Barclays, the major financial services giant with operations
in 50 countries, is the parent company of Absa, South Africa's biggest retail
bank. Barclays acquired a stake of more than 50% in Absa in 2004.
However, earlier this month Robert Diamond, Barclay's chief
executive, and one of his top deputies, Jerry del Missier, resigned amid the
interest rate-rigging scandal. The bank was also slapped with a $450m fine.
Shortly after this sad news broke out, it emerged that lax
controls at HSBC allowed Mexican drug cartels to launder billions of dollars
through the bank's US operations.
By now everyone knows that HSBC had indicated in 2010 that
it wanted to buy 70% of South Africa's fourth-biggest bank, Nedbank, in a deal
many thought would boost international investor confidence in South Africa.
But HSBC cancelled the planned acquisition after conducting
a due diligence of the targeted Nedbank, clearly injuring Sarb's pride.
Analysts said HSBC could have been turned off by what it
found when conducting the due diligence audit as Nedbank had reported a 16%
drop in basic profits at the time.
A livid registrar of banks, Errol Kruger, the former
registrar of banks, told me at the time that the cancellation of the plan to
acquire Nedbank was not good for local banks because it painted them in a bad
"Nothing has come to my attention to change our view of
the soundness of either Nedbank and the South African banking sector, both of
which, as you know, successfully
withstood (without any government and/or central bank assistance) the world's biggest
banking crisis in recent times," he said at the time.
In this case, Kruger sounded like someone who was highly
disappointed that the deal did not go through.
This was indeed the feeling of many people at the time. Many
were banking on the subsequent massive capital injection the transaction would
bring into the South African economy.
Had the transaction gone through HSBC would, by virtue of
owning 70% of Nedbank, have been the parent company of the Sandton-based
This means HSBC's current money-laundering scandal would have
tainted Nedbank somehow, probably knocking the share price very hard.
It is therefore a blessing that the deal did not go through
because the scandalous events unfolding now could have wiped billions off
Nedbank's market capitalisation.
The Barclays scandal has had negative implications for Absa
with calls for the head of Maria Ramos, the chief executive of Absa, to roll
gaining momentum. Ramos was close to Diamond.
That Absa admitted that its results had been overstated has
not helped the situation either.
When the news of Barclays' interest rate debacle broke out,
Absa shares got a severe battering, losing up to 11% in a week. Indeed, what
happened in London has not been good for Absa.
I am sure that the Sarb will in future try to avoid stresses
brought about by the London-based ownership of local banks.
Because South African banks continue to be stable, they
remain attractive to banks from all over the world. This means that suitors
will continue to line up for local banks.
The current events make me wonder if the Sarb would ever
consider suitors from London-based banks. I think the next attraction for the
Sarbs will be banks from emerging countries like India, Brazil and China.
One senior analyst told me that when he was growing up more
than 20 years ago, the City of London used to be a great destination for
investments and other business deals.
"But London's reputation has dwindled since the global
economic downturn broke up," the analyst said.
"This is in view of the fact that bank failures have
happened here. It seems to be the centre of mischief."
The City of London and Wall Street are furiously contending
to be the most hated and least trustworthy financial centres.
London is getting the most attention, at least this month.
The city was once proud of honouring share dealing and money market
It never rains but it pours for London business. And it will
help the country if Sarb applies its mind when it comes to suitors from London.