Banking on Africa

An earlier post challenged the basis of Bob Geldof’s ambition to use capitalism to lift Africa out of poverty.

Bob Diamond, the ex-Barclay Bank chief executive, also thought there would be rich pickings on the continent and was instrumental in setting up Atlas Mara Ltd to create an African banking empire and build a bank to cater to Africa’s fast-growing companies and its large population without bank accounts. However, it has so far been far from plain sailing as problems crop up. Its publicly traded shares have nose-dived. Atlas Mara’s share price has sunk 28% from its $10 listing price in December 2013. High costs and poor economic conditions in some key countries dragged Atlas Mara to a $63 million net loss last year. And corporate-governance experts are criticizing a personal shareholding by Mr. Diamond in one of Atlas Mara’s acquisition targets, which wasn’t fully disclosed until months after Atlas Mara offered to buy it. Other investors are questioning the lavish pay doled out to managers.

Diamond and a young Dubai-based entrepreneur incorporated Atlas Mara in the British Virgin Islands. That location means Atlas Mara’s holding company’s operations aren’t supervised by any financial regulator and it isn’t subject to many of the U.K. rules that apply to British companies. However the banks in which it is invested are supervised by local regulators. The vehicle, listed on the London Stock Exchange, has raised a total of $625 million from investors, including big names such as Janus Capital Management LLC and Wellington Management Co. Atlas Mara has a “standard” listing in London, which is subject to fewer rules and disclosure than marquee companies. Today, Atlas Mara has interests in banks operating in Nigeria, Botswana, Zimbabwe, Tanzania, Zambia, Mozambique and Rwanda. The group controls total assets of about $2.6 billion.

In one of his first forays into Africa, Mr. Diamond in July 2013 invested €8.2 million ($8.8 million) in a Frankfurt-listed company called ADC African Development Corp., according to regulatory disclosures. It aspired to create a sub-Saharan banking franchise and already held stakes in a couple of African banks. The investment was made via a Cayman Islands vehicle, REDWM (Cayman) L.P. that Mr. Diamond ran, according to regulatory disclosures. Less than a year later, in early 2014, Atlas Mara inked its first acquisition: ADC. Atlas Mara paid a 15% premium over ADC’s share price at the time, netting Mr. Diamond a quick gain on REDWM’s investment. Mr. Diamond’s investment wasn't fully disclosed to ADC nor Atlas Mara shareholders until July. “As far as best practice goes, I don’t think that this was a good idea,” said Charles Elson, chairman of corporate governance at the University of Delaware. “From a governance standpoint, having the investor on both sides of the transaction is problematic and obviously raises some questions about the transaction.”

Executives are being paid handsomely, raising concerns from some investors about the company’s cost base on a recent earnings call and in private interviews. Mr. Vitalo, a former Barclays executive, was guaranteed a $1 million bonus for his first six months. He was given 300,000 shares, worth $2.1 million at current prices, on top of about $1.55 million in annual pay and various allowances. By contrast, Barclays paid Mr. Diamond’s replacement, Antony Jenkins, £5.5 million ($8.2 million) last year for running a company whose market capitalization is about 100 times that of Atlas Mara.

One reason behind Atlas Mara’s bumpy ride is its ownership of BancABC, a retail bank with operations in Zimbabwe and elsewhere. Atlas Mara bought BancABC last August for about $210 million. Then the trouble started. Bad loans rose as Zimbabwe’s economy further deteriorated. The bank’s Tanzanian unit temporarily fell below minimum capital requirements. In December, BancABC’s top management team, including CEO Douglas Munatsi, left in part because they were unhappy with what they saw as bureaucratic processes imposed by Atlas Mara, according to a person familiar with the matter. Atlas Mara agreed to pay $17 million to buy their shares, according to filings. A former Standard Bank executive appointed in December 2014 by Atlas Mara to be BancABC’s new CEO is still awaiting approval from local regulators. The executive has received regulatory approval to take on the role of BancABC’s chief operating officer. A person close to Atlas Mara said regulators had concerns about the bank’s Dubai-based management being too far removed from day-to-day operations.