The business of banking
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