THE PRICE OF POPULISM

The Reserve Bank has warned that attempts to nationalise it by buying out its private shareholders will be a cosmetic, but costly exercise. Just how costly hinges on the value placed on the Bank’s shares, which could range from R1.55 to R4,700 each, depending on the measurement used.

The ANC’S move to nationalise the Bank could present a windfall for the Bank’s 759 private shareholders, 116 of whom hold the maximum allotted 10,000 shares per person.

Anticipating this, the ruling party resolved at its December conference that the Bank must be nationalised in a way that will “not benefit private sector speculators”.

Of the 116 significant private shareholders, two reside in Norway, two in Australia and five in Germany, including the troublesome Michael Duerr, a German national who butted heads with successive Bank governors since he started accumulating the Bank’s shares in 2006.

At one point the Duerr family held 90,000 Bank shares (4.5% of its issued share capital).

In 2010, the Bank moved to restrict shareholders to a maximum of 10,000 shares each of the 2m issued. This was mainly to curb Duerr’s activities, which appeared so deliberately irksome as to push the Bank to buy out its private shareholders. In a fit of populism, the ANC has now forced the Bank to do what he could not.

Duerr could not be reached for comment, but he said last year that a private valuation put the Bank’s shares at R4,700 each — suggesting that he is hoping for a personal payout of about R47m when the Bank is nationalised.

However, KPMG put the share’s fair value at R1.55 in a valuation for the Bank in a North Gauteng high court case the Bank brought in 2016 to force recalcitrant shareholders to give up their holdings greater than 10,000 shares. The court accepted the KPMG figure.

One of the reasons the share is so cheap is that private shareholders receive a fixed return of just 10c/share from any annual profits made by the Bank. A full 90% of the Bank’s profits are transferred to government and 10% are allocated to its foreign exchange reserves.

Private shareholders also have no power over the

Bank’s mandate to keep inflation low and stable, or over how it achieves this, and no sway over day-to-day management of the

Bank. As such, the whole shareholding issue is a red herring. The ANC’S determination to remove private shareholders will do nothing to lower inflation or raise the growth rate.

But it will cost the fiscus. The share is currently trading in the open market at about R10. If shareholders achieve the full asking price of R10, the bill to nationalise the Bank would be R20m.

So the question is whether shareholders would be prepared to accept R1.55/share (for a maximum individual windfall of R15,500 for 10,000 shares) for shares that are worth almost R10 (a maximum payout of

R100,000) or even R4,700 (a maximum payout of R47m) without putting up a fight.

Duerr has said his investment in the Bank The only winners from the clumsy and ill-advised call to nationalise the Reserve Bank will be the scrum of lawyers, lining up to profit from the decision is protected until 2034 under a bilateral investment treaty between SA and Germany. This suggests that the state might risk being drawn into international arbitration if it doesn’t handle the nationalisation process with some finesse.

Wits University’s Prof Jannie Rossouw says that, provided SA hasn’t entered into any international treaties that preclude it, the Bank can be nationalised by means of an amendment to the SA Reserve Bank Act, which would need to be passed by a simple parliamentary majority. Shareholders would have no option but to forfeit their shares in accordance with the steps laid out.

What it means: Nationalisation of the Bank is a cosmetic exercise that could prove costly, depending on the share price awarded If the market value [of Reserve Bank shares] in open trades is close to R10 then I cannot see too much of a deviation from the R10, since the market price is probably as close as one can get to fair value JP Landman

Currently, the act makes provision for the Bank’s liquidation, not its nationalisation. In the case of liquidation, it prescribes that shareholders should be reimbursed at a price determined by the trading price of the Bank’s shares — currently about R10.

Rossouw, who holds 10,000 shares, says the courts confirmed the price of R1.55 as “fair”, but he believes neither of the two alternatives (R1.55 or R10) limit or bind parliament.

Of course, in expropriating private property government will (at least for now) have to pass the test laid out in section 25 of the constitution, which stipulates that “just and equitable” compensation will have to be paid.

“If the market value in open trades is close to R10 then I cannot see too much of a deviation from the R10, since the market price is probably as close as one can get to fair value,” says political and economic analyst JP Landman. “But the over-the-counter trade will raise issues like volume, depth of the market and so on. I can see a lot of energy and lawyers’ fees going into this.”

And all for zero economic benefit. That, in a nutshell, is the price of populism.