CEO Bob Diamond: Very Focused On The Eurozone, Bullish On Africa

Atlas Merchant Capital Founder & CEO Bob Diamond spoke with FOX Business Network’s (FBN) Maria Bartiromo at the Milken Institute Conference about investing in Africa. Diamond said, “The opportunity to invest in Africa is real,” and that “I think our opportunity in Africa and our ability to execute is differentiated by the fact that we have permanent equity and we have a listing on one of the world’s major exchanges.” When asked whether the Russian situation is affecting investing in Europe, Diamond said, “that certainly impacts investing in eastern Europe for the present time, but I think the opportunity in the Eurozone is equally compelling and I don’t think that is directly impacted by these moves” Diamond went on to say, “we’re very focused on the Eurozone.”

Bob Diamond

Excerpts from the report are below.

Bob Diamond On whether the Russian situation is affecting investing in Europe:

“Well it will certainly impact investing in eastern Europe for the present time, but I think the opportunity in the Eurozone is equally compelling and I don’t think that’s directly impacted by these moves. But if you think about the capital leverage and the leverage levels in the Eurozone banks, they haven’t changed as much as the U.S. banks or the U.K. banks; it just has not been as dramatic.  The capital markets have never been as big a part of the Eurozone.  Most of the lending to corporates ends up on the balance sheets of the banks. And we’re seeing an impact with the French banks, the British banks, are pulling capital because of Basel III back to the home market. And within the Eurozone, banks are still struggling, I would say, to earn their cost of equity. They’re struggling to get out of businesses that are subscale or unprofitable and focus on the areas of scale.  And as this happens, more capital is coming back to the home market and you see more things happening, such as Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) selling its international operations,  UniCredit SpA (BIT:UCG) announcing that they’re going to sell Pioneer, their U.S. asset management business.   So we’re very focused on the Eurozone. David Schamis, who has joined, is one of our founding partners after 14 years at J.C. Flowers, clearly sees the opportunity for – with the same principles, where we can go deeper, we can go into majority positions, we can use real equity, and we can be not just investors but operators as we acquire partial businesses and whole businesses as the banks focus more on getting scale in their home market.”

Bob Diamond On asset management:

“Asset management is the other great opportunity that we’re focused on.  You know, for every  BlackRock, Inc. (NYSE:BLK) which has scale and has tremendous operating performance… for each BlackRock, Inc. (NYSE:BLK) there’s 100 or 150 or 200 subscale but very talented asset management firms.  They may be looking for global access.  They may not be able to keep up with technology in an era of cloud-based technology and big data.  It may be that they’re looking to get more of the — more access to some of the big pools of capital from sovereign wealth funds or from private banking. And we have been building the technology base so that as we have the opportunity to acquire or bring together asset management businesses, we can help them as operators on their technology, on the talent, on their access to global flows of capital and we can help them achieve scale.”

On whether his focus at Atlas Merchant in particularly is in asset management:

“Yes, all financial services, and we see asset management, the Eurozone and developed market financial services in Africa as the three biggest opportunities for investment.”

On how Atlas Merchant Capital has evolved:

“So we had an opportunity, post the financial crisis, to look at the various models of investing.  And certainly, for us, our focus was on financial services, that’s the area that we know.  If you look at the – it’s very, very interesting to look at just some very broad numbers.  But if you look at the rebound in the major economy indexes since the financial crisis, the broad markets are up 30 or 35 percent.  But if you took financials out, they’d be up 60 percent.  And what’s clear is that financials are still down between 40 and 50 percent, so the opportunity for an investor to be investing in financial services post the crisis is real.  And yet it’s an area or a sector of the economy that probably gets less attention from investors than any other sector.  So, certainly, there’s a lot of opportunities for us to look at.”

On whether the population growth outside the U.S. will need more financial services:

“Well, you hit on something interesting in terms of what are the reasons we picked Africa for one of our first initiatives?  And I’ve certainly had experience as a banker there, because of being in Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) and the acquisition of Absa in 2005, and the wonderful businesses that Barclays has throughout Africa. But it’s also about those demographics.  If you look at the economic growth in Africa, the average age in the SADC region, the region that we just acquired Bank ABC in, the average age is about half of that in the U.S., yet the population growth is three times that in the U.S.  Mobile phone penetration is half that of the U.S. and close to 80 percent of the people are still unbanked.  So, clearly the opportunities are terrific.”

Bob Diamond On investing in Africa:

“The opportunity to invest in Africa is real, and what we had to think about initially is what’s the right vehicle for that?  And we looked at private equity, as an example.  But we ended up going with permanent equity, listing in the London stock exchange, raising the $325 million that you talk about.  And I think our opportunity in Africa and our ability to execute is differentiated by the fact that we have permanent equity and we have a listing on one of the world’s major exchanges.  And that makes us more welcomed by the targets and by the heads of state, because we’re putting permanent equity in.   I think the second thing, that differentiates our approach, is that we don’t think of ourselves just as investors.  We think of ourselves very much as operators.  So every stake we take is a majority stake.  We want to work in partnership with the management that’s there.  If you look at the opportunity in the SADC region, Bank ABC had banks in five countries, has a current earnings above 20 percent, the valuation was at about book level, book value.”

On whether he has been looking to invest in Africa since being at Barclay’s:

“Yes.  I think that was one of the wonderful businesses in Barclays, was Africa.  Many of the countries there, Ghana and Kenya, Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) has been there for 80, 85, 90 years, so it was a great foundation.  And I certainly learned a lot. Our family enjoyed going there when we were living in London and our family foundation does a lot of work there and it’s just about a year ago when I met, Ashish, my partner, Ashish Thakkar, in Cape Town.  And we were both there working on our foundations, but it took us about 15 minutes to start talking about the tremendous opportunity that financial service presents.”