COVER STORY

Most of Stan­dard Bank’s global bur­den has been off­loaded and the fo­cus from now on will be on grow­ing its con­ven­tional bank­ing busi­ness in Africa, writes Gil­lian Jones

Financial Mail - Investors Monthly - - Contents - Cover: BRAN­DAN REYNOLDS

Stan­dard Bank’s years of dom­i­nance over the lo­cal bank­ing pack has ended, but it has set its sights on be­com­ing the lead­ing fi­nan­cial ser­vices or­gan­i­sa­tion in Africa

On the re­lease of Stan­dard Bank’s full year re­sults ear­lier this month, joint CEO Sim Tsha­bal­ala said the bank could not prom­ise there would be no more sur­prises, given that it was in the busi­ness of man­ag­ing risk. But he did of­fer as­sur­ance that SA’s sec­ond-largest bank by mar­ket cap­i­tal­i­sa­tion was determined to stick to its Africa strat­egy.

“When we have lost money it is usu­ally in cases where we have been off strat­egy. We have now closed down ev­ery­thing that is not within our strat­egy.”

The sale of a 60% stake in Stan­dard Bank’s global mar­kets busi­ness unit to the bank’s largest share­holder, the Industrial & Com­mer­cial Bank of China (ICBC), was fi­nally com­pleted in Fe­bru­ary.

This busi­ness, based in Lon­don, has been a ma­jor drain on Stan­dard Bank’s cof­fers, with head­line earn­ings per share for the year ended De­cem­ber in­creas­ing by only 1%.

How­ever, when ICBC’s 60% stake in the global mar­kets busi­ness is ex­cluded from the re­sults, head­line earn­ings from con­tin­u­ing op­er­a­tions in­creased by a health­ier 12%.

The sale of the global mar­kets busi­ness marks the end of a tough four years dur­ing which the bank un­wound its ex­pan­sion ef­forts into emerg­ing mar­kets out­side the African con­ti­nent.

The bank’s am­bi­tious plans to be­come a lead­ing emerg­ing mar­kets bank were cut short by the global fi­nan­cial cri­sis in 2008. As a re­sult, Stan­dard Bank sold as­sets in Rus­sia, Turkey, Ar­gentina and Brazil and used the cash to in­vest in grow­ing its African pres­ence.

This is in line with the bank’s re­vised strat­egy of be­com­ing the lead­ing fi­nan­cial ser­vices or­gan­i­sa­tion in Africa.

How­ever, the bank has lost its lead­ing place among in­vestors in SA. Last year, FirstRand over­took Stan­dard Bank in mar­ket size, putting an end to the dark blue bank’s years of dom­i­nance over the lo­cal bank­ing pack.

FirstRand’s mar­ket cap­i­tal­i­sa­tion of R312,8bn is now more than R60bn ahead of Stan­dard Bank’s R251bn.

It is hard to imag­ine what Stan­dard Bank would have to do to close this gap, given that FirstRand ap­pears to be able to do lit­tle wrong.

Stan­dard Bank has not only suf­fered the bur­den of its cap­i­tal-in­ten­sive emerg­ing mar­kets busi­nesses; it has also been hit by a num­ber of other mishaps.

The global mar­kets busi­ness made a head­line loss of R3,8bn for 2014, partly due to write­downs re­lated to alu­minium fraud in China. About $167m of alu­minium that the global mar­kets unit claimed it owned and held in bonded fa­cil­i­ties in Qing­dao port was found to have been pledged as col­lat­eral nu­mer­ous times. Stan­dard Bank has made a val­u­a­tion ad­just­ment of $147m to ac­count for this.

More than 20 banks are said to have been af­fected by the fraud. Stan­dard Bank, which is not ac­cused of wrong­do­ing, is tak­ing legal ac­tion and claim­ing from in­sur­ance to at­tempt to re­cover the losses.

The bank was also fined by UK and South African reg­u­la­tors in the past year for hav­ing in­ad­e­quate con­trols to com­bat money laun­der­ing.

In an­other case, the bank, along­side BASF, Gold­man Sachs and HSBC, has been named in a class ac­tion suit in New York for al­legedly ma­nip­u­lat­ing the plat­inum price.

SA’s other ma­jor banks have not hit the head­lines for the wrong rea­sons as of­ten as Stan­dard Bank has in the past year.

Tsha­bal­ala says banks lose money ei­ther be­cause of mar­ket forces or when they are de­frauded by their clients or staff.

The ma­jor loss suf­fered in the Chi­nese fraud case “was an un­usual event be­cause it was such a so­phis­ti­cated and well

Pic­ture: THINKSTOCK

Pic­ture: THINKSTOCK

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