Avoid Brown’s clutches
Could Absa have Gordon as a shareholder?
THE BRITISH GOVERNMENT’S rescue of three of its biggest banks has seen it extend a £37bn lifeline to Britain’s financial institutions. The move sees it become the biggest shareholder in two of them: Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS). It has also provided funding to Lloyds TSB. However, Barclays plc – the controlling shareholder in South Africa’s Absa – appears intent on bending over backwards to ensure it doesn’t take the government’s money.
For Barclays, accepting the bail-out would mean, by extension, the British government – led by Prime Minister Gordon Brown – would become a shareholder in Absa. The bail-out of RBS and HBOS will put severe restrictions on those banks – restrictions Barclays doesn’t want to accept if it can possibly help it.
Executives at Barclays also seem intent to hold onto their jobs, whereas RBS CE Sir Fred Goodwin and chairman Sir Tom McKillop are stepping down, as are HBOS CE Andy Hornby and chairman Dennis Stevenson.
Some of the operating restrictions will see remuneration policy at the banks that have accepted bail-outs strictly vetted, dividends frozen and the banks will operate under increased scrutiny.
Barclays is seeking money from the capital markets. Investec last week showed it was still possible to do so. CEO Stephen Koseff revealed Investec had raised a syndicated loan of US$500m from 16 international banks in a move he said showed credit markets were still functioning.
The international drama has been playing out against a backdrop of growing concern about the ability of SA’s banks to avoid being caught up in the maelstrom of negativity worldwide.
Both SA Reserve Bank Governor Tito Mboweni and Finance Minister Trevor Manuel have moved to assure investors and depositors in local banks about their holding companies’ strong capital adequacy levels. But there’s no way of getting away from the fact the crisis is going to have an impact.
Despite the success of Investec’s capital raising, concerns remain about the medium term and South African companies’ ability to borrow money internationally.
“The crisis has made it difficult to raise capital – or made it a very expensive exercise,” says Cas Coovadia, MD of the Banking Association. “Our banks have been fundamentally sound throughout this crisis. Our banks haven’t had significant exposure to the sub-prime portfolios that were the catalyst for the crisis. However, our banks have felt the effects of the liquidity shortage and they’re fundamentally sound – and will remain so.”
But concerns do remain as to how South African companies will hold up as the global economy slows. “We can’t decouple ourselves,” Manuel said in a radio interview from Washington, where he was attending the IMF gathering. “There’s clearly going to be a contagion. We’re integrated into the global economy.”
Manuel will this week publish his latest 2008 growth forecast as part of his mediumterm Budget policy statement. Earlier this year he predicted the economy would grow at around 4%, thanks primarily to Government infrastructure spending. However, private sector economists are less optimistic about growth rates.
SA’s banks have so far managed to escape the worst of the rout worldwide. While profit growth to June plummeted throughout the banking sector, Manuel lauded this country’s regulators for ensuring banks remained well capitalised.
While SA bank shares have lost some ground in the volatility of the past month – relative to their international peer group – they’ve held up very well. But not everyone is optimistic about their short- to medium-term prospects.
Still raising capital. Stephen Koseff