The busi­ness of bank­ing

Financial Mail - - INVESTOR’S NOTEBOOK - @scranston

Lit­tle at­ten­tion has been given to the sec­ond phase of the Old Mu­tual man­aged sep­a­ra­tion — the un­bundling of Ned­bank shares. This will be a rather half-hearted ex­er­cise as Old Mu­tual will still hold 19.9%. So it would not be dif­fi­cult for it to still round up a few tame share­hold­ers and block any­thing it didn’t like.

It will be less vis­i­ble, as the num­ber of Old Mu­tual-ap­pointed di­rec­tors will fall from three to just one. And some re­stric­tions will fall away. When Old Mu­tual res­cued Ned­bank in 2004 it was in a po­si­tion to in­sist that the bank could not raise cap­i­tal with­out the life of­fice’s ap­proval nor could it make ma­te­rial ac­qui­si­tions. This was im­por­tant as, un­der for­mer CEO Richard Laub­scher, the bank tried to con­vince ev­ery­one it wasn’t a bank but a tech­nol­ogy hold­ing com­pany called Ned­cor. It is a bit scary that FNB also con­sid­ers it­self to have mor­phed from a bank into a tech busi­ness. Un­der Laub­scher’s suc­ces­sor Tom Board­man and in­cum­bent Mike Brown th­ese pre­ten­sions have been ditched. It is firmly back in the simple busi­ness of lend­ing and bor­row­ing money.

Old Mu­tual and Ned­bank ex­ec­u­tives smile on the plat­form to­gether but the cul­tures have never been fully com­pat­i­ble. The dy­namic out­ward-look­ing Joburg-based bank was al­ways a strange bed­fel­low with the some­what slow-mov­ing Cape-based life of­fice, though ad­mit­tedly it is a lit­tle less sleepy since it moved its 200 top peo­ple to Sand­ton a decade ago.

It is usu­ally much more pro­duc­tive when a bank is the se­nior part­ner.

It is fairly easy for a bank to repli­cate life of­fice ac­tiv­i­ties such as credit life and fu­neral poli­cies, and as there are so many more in­ter­ac­tions ev­ery month with a bank than with a life of­fice the dis­tri­bu­tion plat­form is far more ro­bust. In the case of Stan­dard Bank and its sub­sidiary Lib­erty, the bank can use the threat of set­ting up a par­al­lel busi­ness to en­sure that Lib­erty pro­vides the net­work with cheap prod­ucts.

But it would be hard for Old Mu­tual to re­pro­duce the Ned­bank branch net­work, and even when it did set up Old Mu­tual Bank it didn’t take long for the reg­u­la­tor to close it.

Ba­sic life prod­ucts

Ned­bank doesn’t need Old Mu­tual to sup­ply it with ba­sic life prod­ucts, it man­u­fac­tures th­ese in-house al­ready. And it has an equally good, if not bet­ter, of­fer­ing in wealth man­age­ment.

Ned­bank fi­nan­cial plan­ners dis­trib­ute Mu­tual’s en­dow­ments and an­nu­ities, but Ned­bank fi­nance di­rec­tor Rais­ibe Mo­rathi says it would be flout­ing the com­pe­ti­tion law to show any favouritism.

The two groups are aim­ing to save R1bn an­nu­ally through joint pro­cure­ment in ar­eas such as voice and data com­mu­ni­ca­tions. Ar­guably this can con­tinue as long as Old Mu­tual is a ma­jor share­holder, but surely each busi­ness is large enough to look af­ter it­self? Even in Africa, Mo­rathi says, Old Mu­tual’s ban­cas­sur­ance agree­ment with Ecobank is un­re­lated to the fact that Ned­bank is one of Ecobank’s largest share­hold­ers.

For­tu­nately, in the first quar­ter Ecobank was a pos­i­tive con­trib­u­tor to Ned­bank of R42m against the loss of R1.2bn a year ear­lier.

It is time Ned­bank was granted full independence, just as Stan­dard Bank needs to let Lib­erty go, or buy it out and start its own ver­ti­cally in­te­grated ban­cas­surer.

This is what FNB and Absa are do­ing, and it is what Ned­bank should soon be able to start up. Old Mu­tual claims to pro­vide great ad­vice. But I wouldn’t take much no­tice of its ad­vice on run­ning a bank.

Old Mu­tual and Ned­bank ex­ec­u­tives smile on the plat­form to­gether but the cul­tures have never been fully com­pat­i­ble

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