What is in a brand name?
The announcement that Barclays Africa Group shareholders have been informed that its name will change to Absa Group Ltd subject to regulatory and shareholders’ has left many of them with more questions than answers.
Barclays Bank Kenya (BBK) is part of the lender’s Africa unit.
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Subject to approval, the effective date of the name change is likely to be May 30 this year.
It was made clear that the Barclays brand may only be used for the rest of Africa up to June 6, 2020, subject to an additional two-year run-off period in respect of cards.
The implication is that the name Barclays Bank will disappear as well as its logo.
This change of the name is as a result of Barclays BankUK Plc pulling out or reducing its investments in Africa.
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It appears that for some reason, Barclays Bank UK Plc does not want its name associated with Absa Group Ltd – previously the Amalgamated Banks of South Africa.
The message from Barclays Bank UK Plc is that volatile market conditions in African economies translate into unattractive investment.
Furthermore, there is the other baggage of doing clean business in Africa.
In 2016, Barclays Bank UK Plc chief executive said the lender owns 62 per cent of the assets of Barclays Africa but shoulders 100 per cent of the liabilities for its African business.
These liabilities can be tangible or intangible. The intangible liabilities border on reputation.
It appears Barclays Bank UK Plc might not have been comfortable to associate with Absa.
A report from South Africa in January 2017 indicated that between 1985-1992, Absa received extensive illegal bailouts, with the recommendation that it be forced to pay back the money.
Foreign companies are finding it extremely difficult doing business in Africa due to corruption.
The reality is that if African governments do not change how they do business, sooner or later, foreign firms will flee the continent altogether.
No chief executive officer in Europe or the US will transact with Africa and risk going to jail as a result of corrupt transactions.
If we cannot change our corrupt practices, the world will change us.
The big question then is: What is in a name?
Will the change of BBK name and logo affect the value of shareholders’ wealth in the company?
How will BBK customers internalise the change?
Will the change attract more deposits to the bank, translating into more advances and a promise of higher value for the bank’s shareholders?
In the year of change of name and logo, the firm will incur expenditure running into millions of shillings.
The advertisement of the new name and new logo will also consume substantial resources.
The bank’s customers must be convinced that the name and logo change must be to their benefit.
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There is significant expenditure associated with name changes. Are they justifiable?
These expenditures will only be beneficial if they translate into increased shareholder wealth.
In the US, studies show that the impact of the change to a name on shareholder is mixed, at times beneficial and times not helpful, and the relationship is clearer for industrial companies.
In the UK, researchers reported a significant negative impact of the change of name and logo on stock prices.
In Australia, the stock market tends to react negatively to corporate name and logo change and stock (share) prices.
Ideally, a name change should be associated with an increase in share price.
No company would opt for corporate name and logo change if that translates into losses for shareholders.
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However, companies with a track record of poor performance at times change their names to hoodwink their stakeholders.
In comparing pre and post-corporate name performance, the problem would be determining how much of the change in share price would be associated with a change in stock price and more so when the restructuring plan accompanies name change.
The BBK name change is not a pure name change but a result of ownership restructuring and is therefore expected to impact the company’s share price.
Pure name changes are not accompanied by any other corporate event.
However, even this might have the impact on investor sentiments and subsequently on share prices.
Structural name changes are associated with restructuring, merger, launch of new product, change of chief executive officer and they are expected to impact stock prices.
However, change in stock prices is fundamentally affected by operations within the company and not a mere name change.
In case of BBK, its shares have jumped from Sh9 to almost Sh13 since the announcement, although the change in name was announced almost at the same time that Barclays Bank Kenya announced that it would pay a dividend of Sh0.80 per share sometime in May 2018.
-The writer teaches at the University of Nairobi