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Big picture

05 October 2004 Angelo Coppola

The potential bid by Barclays for ABSA is of much interest as it could affect a number of key local macro and micro economic variables, says Dawie Klopper of PSG Fund Managers.

On the macro level we have already seen that the rand has strengthened on just the potential of such a bid.

It is expected that $3bn could flow into the country if the deal goes ahead. If the regulatory authorities and the government allow the deal it could also open the door for similar bids from other offshore financial institutions for some of our other local banks.

This foreign direct investment (FDI) would be of huge significance and will probably be recognition for what has been achieved in this country over the past ten years.

Up to now we have always complained about the lack of FDI and have worried about short-term capital flows playing havoc with the rand.

The fact that our banks are still trading at attractive one year forward PE's of below 8.4 make our banks attractive take-over bids and this sort of action could unleash the value that is so evident in our banks.

However, for these foreign entities to make an attractive case, they will probably have to convince the authorities that their business models would lead to lower bank charges and costs.

This of course will be a drag on banks profits but will and could in a way lead to lower inflation. A strong rand will also support the fight against inflation and in turn lead to lower interest rates and higher economic growth.

If the authorities allow this transaction, will it be a case of selling the family silver or will it be the trigger for further foreign direct investment and job growth?

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