Avoid Brown’s clutches

Could Absa have Gor­don as a share­holder?

Finweek English Edition - - Companies & Markets - BRUCE WHIT­FIELD brucew@fin­week.co.za

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.

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Still rais­ing cap­i­tal. Stephen Kos­eff

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