Tidy­ing up

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

THE PRO­POSED TAKEOVER by Ned­bank of Im­pe­rial Bank will sig­nif­i­cantly bol­ster the bank­ing group’s as­set fi­nance divi­sion, par­tic­u­larly its ve­hi­cle fi­nance op­er­a­tion – cur­rently the sec­tor lag­gard. The merger of Ned­bank ve­hi­cle fi­nance and Im­pe­rial’s Mo­tor Fi­nance Cor­po­ra­tion (MFC) will give the en­larged divi­sion a com­bined book of around R40bn. That’s small com­pared to com­peti­tors WesBank’s and Absa Ve­hi­cle and As­set Fi­nance, which have about R100bn and R70bn on their re­spec­tive books.

How­ever, a large pro­por­tion of the as­sets funded by the larger firms are in the com­mer­cial sec­tor, whereas the MFC/ Ned­bank tie-up will give it sig­nif­i­cant scale in re­tail ve­hi­cle deal­er­ships. “It will make them very com­pet­i­tive in the re­tail ve­hi­cle mar­ket,” says Marcel de Klerk, manag­ing ex­ec­u­tive at Absa Ve­hi­cle and As­set Fi­nance. That space is cur­rently dom­i­nated by WesBank, which is likely to re­tain its num­ber one spot. In­dus­try play­ers are keen to see the full im­pact of MFC’s merger with Ned­bank and the likely in­dus­try shake-up that must fol­low.

In­sid­ers sug­gest the bet­ter-known MFC brand will re­main in deal­er­ships to pro­vide con­ti­nu­ity to re­tail con­sumers, while Ned­bank branches will keep bank brand­ing for its clients. It’s likely there will also be op­er­a­tional syn­er­gies from the deal as well as some tech­no­log­i­cal ad­van­tages. MFC is renowned in the in­dus­try for its cus­tomer-fac­ing IT plat­form while Ned­bank’s back-end sys­tems are re­garded as be­ing more ro­bust.

While the ve­hi­cle fi­nance op­er­a­tions are to be merged, Fin­week un­der­stands the three whole­sale di­vi­sions of Im­pe­rial Bank – Sup­plier As­set Fi­nance (in­clud­ing big “yel­low” ma­chin­ery, truck­ing, avi­a­tion, of­fice au­to­ma­tion), Prop­erty Fi­nance (com­mer­cial prop­erty and res­i­den­tial de­vel­op­ment) and Pro­fes­sional Fi­nance (mainly med­i­cal prac­ti­tion­ers) – will be re­tained as a sin­gle 100% owned as­set fi­nance busi­ness within Ned­bank and won’t be bro­ken up and ab­sorbed into var­i­ous bank di­vi­sions. The var­i­ous en­ti­ties op­er­ate in niche mar­kets and have var­i­ous spe­cial­i­sa­tions re­quir­ing staff with spe­cific skills.

In its hey­day Im­pe­rial Bank funded many ex­ec­u­tive jet buys but burnt its fin­gers rather badly in the avi­a­tion busi­ness and turned its at­ten­tion to prop­erty and ve­hi­cles. Nei­ther of those in­dus­tries is cur­rently per­form­ing spec­tac­u­larly. The prop­erty sec­tor re­mains un­der pres­sure, and Naamsa’s new ve­hi­cle sales showed con­tin­ued year-on-year weak­ness.

But Ned­bank fi­nan­cial di­rec­tor and in­com­ing CEO Mike Brown doesn’t ap­pear con­cerned by the tim­ing of the deal. If any­thing, it may give him some lever­age on price, which is yet to be fi­nalised. It ap­pears likely at this stage a deal will in­clude a cash and eq­uity com­po­nent.

“Talks are pro­gress­ing well,” says Brown. “The deal helps fur­ther sim­plify our struc­ture and al­lows Im­pe­rial Bank clients ac­cess to a wider prod­uct range.”

When fi­nal­ized, the deal will be pre­sented to the boards of Ned­bank and Im­pe­rial, prob­a­bly in mid-June, af­ter which reg­u­la­tory ap­provals will be sought. It’s un­likely the trans­ac­tion will face any op­po­si­tion from Reg­is­trar of Banks Er­rol Kruger, who’s well known for his aver­sion to joint ven­tures, con­cerned that there aren’t usu­ally de­fined lines of re­spon­si­bil­ity.

Has lever­age. Mike Brown

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