Technology and M&A part of Nedbank’s history and future
Waves of merger and acquisition (M&A) activity and the rising use of technology in all facets of decision-making are among the memorable developments that define Nedbank’s 50 years as a listed company and are likely to define its future.
Ahead of the birthday celebration last week, Nedbank CEO Mike Brown sat down to discuss the defining features of the group as a listed entity.
One of the biggest developments over the past 25 years has been the “computerisation” of ever more aspects of banking, starting in the 80s with recordkeeping, swiftly followed by the development of ATMs.
“Over the last 15 years or so this has extended to the use of data and analytic models to supplement judgement in either making risk decisions [like how much credit to extend and at what rate] or in measuring and monitoring risk and allocating capital,” says Brown.
It is the use of technology by a wave of digital entrants including
the likes of Tymebank, BankZero and Discovery Bank, and the response by the larger, established banks that will define the competitive landscape in the years ahead, says Brown.
The group is the product of significant transactions in distinctive periods, in which Nedbank merged with or acquired other banks, including Syfrets (founded in 1834), Cape of Good Hope (1831), UAL, the SA Perm, Imperial Bank and BOE ( 1838).
The separately listed Nedcor Investment Bank also had to be brought back into the fold.
Mergers had been done for different reasons. With mounting concern about the quality of Saambou’s loan book, which sparked a run on the institution, the Reserve Bank deemed it not systemically important — in other words, not too big to fail — and let it enter curatorship.
“But shortly thereafter the institutional deposit market began to test where the imaginary line exists between which banks are considered too big to fail and the government will bail out and which, like Saambou, are not,” says Brown.
Despite the Bank saying BOE was solvent and well capitalised, after the Saambou failure a run on institutional deposits at BOE effectively triggered the merger between BOE and Nedbank.
Tom Boardman, CEO of BOE, would become CEO of Nedbank, with Brown named his successor when Boardman resigned. However, it may well be that Boardman’s predecessor, Richard Laubscher, left one of the most indelible impressions on the country’s banking industry.
On November 16 1999, Nedbank looked at its bigger blue rival, Standard Bank, and with a steely resolve took its bid hostile by offering to exchange one Nedbank share for every 5.5 Standard Bank shares, valuing the deal at R29.2bn.
The offer would play out over the next few months until then finance minister Trevor Manuel deemed a merger not to be in the interest of the industry or SA.
Audacious or arrogant? “Nedbank was in a position of strength, and Laubscher played his hand,” says Brown. In the end, it all may have been more beneficial for Standard.
“I am sure Standard Bank would say it was a very tough period ... in their history, but it also acted as a catalyst for change. [It] emerged thereafter as a stronger organisation.”
Any reflection on a banking group over recent years would have to include a discussion on the global financial crisis. Brown thinks a number of mitigating factors protected local financial institutions from the carnage.
“We had been better regulated leading up to the global financial crisis, and I give banks registrar Errol Kruger credit for that. None of the local banks had built exotic asset portfolios that ultimately blew up,” says Brown.
One unintended outcome was that regulators began raising capital levels, and fewer new licences were issued as bigger institutions were required to become stronger and more stable.
“But now the cycle over the last two or three years has shifted a little bit, and we are back to the birth of a whole lot of newer banks that we haven’t seen in the 10 years,” says Brown, seeing a new wave of consolidation.