How African Bank’s col­lapse af­fects your pocket

This week, African Bank In­vest­ments Lim­ited was placed un­der cu­ra­tor­ship. Maya Fisher-French and Neesa Mood­ley-Isaacs find out how this will af­fect you

CityPress - - Business -

AS A DE­POS­I­TOR

If you have sav­ings with African Bank, the good news is that your money is safe. The SA Re­serve Bank has stood be­hind the de­posits for re­tail clients and the bank is be­ing re­cap­i­talised. The bank’s cu­ra­tor, Tom Win­ter­boer, con­firmed that “African Bank is open for busi­ness and that our re­tail cus­tomers’ money is safe”.

AS A BOR­ROWER

If you have a per­sonal loan with African Bank, you will still need to con­tinue with your re­pay­ments. The com­pany is still open for busi­ness and clients are still ex­pected to re­pay their loans.

AS AN IN­VESTOR

If you bought shares in the hold­ing com­pany, African Bank In­vest­ments Lim­ited (Abil), or the black em­pow­er­ment share scheme, you will not be able to sell your shares at this stage. Abil shares were sus­pended from trad­ing this week. This means no one can buy or sell Abil shares un­til fur­ther no­tice – the share price is frozen at 31c a share at present.

In­vestors in Abil’s black em­pow­er­ment schemes, Ey­omh­laba and Hlu­misa, are sit­ting deep in the red as the debt owed on the shares is far higher than the shares are worth.

Craig Gra­didge of Gra­didge-Mahura In­vest­ments says Abil would have to be trad­ing at R2.80 for in­vestors in the em­pow­er­ment schemes to break even.

At this stage, Abil has not pro­vided any in­for­ma­tion on how this debt will be re­struc­tured.

Gra­didge says one op­tion is to ex­tend the terms on the deal and wait for the cu­ra­tor­ship process to run its course. As an in­vestor in funds with ex­po­sure to Abil

In­vestors in unit trusts and money mar­ket funds who had ex­po­sure to Abil will see their re­turns af­fected.

Stan­lib chief ex­ec­u­tive See­lan Gobal­samy con­firmed that sev­eral Stan­lib unit trust funds had bought shares in Abil.

“The im­pact on in­di­vid­ual in­vestors will vary de­pend­ing on the ex­po­sure of their cho­sen funds,” he says. The funds that were the hard­est hit were the Stan­lib Fi­nan­cials Fund and the Stan­lib Value Eq­uity Fund.

“We ad­vise our clients to re­main fo­cused on their in­vest­ment goals and re­main com­mit­ted to these goals.

“Mar­ket fluc­tu­a­tions are in­evitable and while this event has cre­ated un­cer­tainty, we do not be­lieve our clients should act in haste,” says Gobal­samy.

The chief in­vest­ment of­fi­cer at Coro­na­tion, Karl Lein­berger, says although losses have been in­curred by Coro­na­tion funds, these have been lim­ited.

“We made sure only those funds with ap­pro­pri­ate risk bud­gets in­vested and that ex­po­sure was con­tained to ap­pro­pri­ate lev­els. This has been clearly demon­strated by the re­silient per­for­mance of all our funds this month.”

In a let­ter to in­vestors, Lein­berger said this had been a hum­bling ex­pe­ri­ence. “We do not like to make mis­takes. Un­for­tu­nately, mis­takes are part of life for an in­vest­ment man­ager.

“The chal­lenge is to make sure they aren’t ma­te­rial and that we learn from them.”

Although re­tail de­posits were safe­guarded, in­sti­tu­tional in­vestors, in­clud­ing money mar­ket funds, did not re­ceive the same pro­tec­tion.

As a re­sult, money mar­ket funds that had de­posited cash with Abil will re­duce the in­ter­est paid to clients although the im­pact should be min­i­mal.

Leon Cam­pher, the chief ex­ec­u­tive of the As­so­ci­a­tion for Sav­ings and In­vest­ment SA, says money mar­ket funds will off­set write­downs on African Bank debt se­cu­ri­ties against in­come for this month.

The Fi­nan­cial Ser­vices Board (FSB) has con­firmed that money mar­ket funds over­see­ing about R270 bil­lion have 1.3% ex­po­sure to African Bank debt.

Ac­cord­ing to the FSB, one day’s in­ter­est might be used to re­cover losses.

If that is not enough, funds may re­duce the num­ber of units rather than im­pair their value.

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