FirstRand to enter transactional banking in the UK

FirstRand has vowed not to take its eye off its South African business, as it plans its entry into transactional banking in the UK through Aldermore.

A nine-year-old challenger bank with no branch network, Aldermore, for which FirstRand paid £1.1bn in 2017, gives the banking group a lending and deposit franchise in the world’s sixth largest economy — one that it plans to grow.

Freshly armed with a UK banking licence, FirstRand will launch transactional banking through Aldermore, chiefly to attract more deposits. These will be used to fund its vehicle finance business MotoNovo, which is to be integrated within Aldermore as a separate pillar.

All this would be done “steady Eddie” style, incoming group CEO Alan Pullinger said on Tuesday at the group’s interim results. “If we stuff it up, we won’t be forgiven.”

To attract greater deposits, Aldermore, which had deposits of £7.2bn at end-September, needed to offer transactional banking, he said. The plan was not to take on high-street banks, such as Barclays and Lloyd’s. Rather, Aldermore would seek out niche plays including in the small- and medium-size enterprise market.

Nine out of 10 British consumers hold current accounts with one of the six largest banking groups and most are not shopping around, according to market research firm Mintel.

FirstRand joins South African companies, such as Brait, Famous Brands and TFG, that have made sizeable acquisitions in the UK with mixed results. Financial services peers Discovery and Investec have fared far better.

“We agree completely that the jury is out, because lots of South African businesses have gone to the UK and they’ve come back with their tails between their legs. We would actually prefer … scepticism, because we’d rather prove people wrong,” Pullinger said.

FirstRand’s UK acquisition needed to be viewed in the light of its relatively lower exposure

to the rest of Africa as a source of geographic expansion compared with banking rivals Nedbank, Barclays Africa and Standard Bank, said Renier de Bruyn, an investment analyst at Sanlam Private Wealth.

Having failed to find a suitable acquisition on the continent, FirstRand had deployed excess capital in the UK, securing hardcurrency earnings and easing funding pressure for MotoNovo, he said.

Pullinger, who takes over from Johan Burger on April 1, emphasised that South African revenues would be protected.

The banking group’s earnings — 80% of which are derived from SA — increased 7% to R12.7bn over the six months to December 2017.

It continues to diversify into insurance and investments, cross-selling into FNB’s seven million-strong client base.

“We share a very small part of the monthly insurance premiums paid out of FNB accounts. There is lots of runway,” Pullinger said. FNB’s unit trusts grew assets nearly seven-fold on the prior half-year to R3.6bn.

Presenting his final set of results before retiring, Burger, who started his career with FirstRand in 1987, paid tribute to the group’s co-founder, Laurie Dippenaar, describing him as a mentor who embodied the owner-managed culture behind FirstRand’s success.

“Fundamentally an owner of a business treats that business very differently to a professional manager,” Burger said.