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Finweek English Edition - - COMPANIES & INVESTMENTS -

o bond hold­ers do a bet­ter job than eq­uity hold­ers when do­ing their home­work on a com­pany?” asked Jo­han­nes­burg-based as­set man­ager, Ves­tact, on one of its daily mar­ket re­ports last week.

“I mean, bond hold­ers have the same ob­jec­tives, max­i­mum re­ward at the low­est pos­si­ble risk. Of course that is how some banks in the US got into trou­ble dur­ing the last down­turn as their triple-A rated Mort­gage Backed Se­cu­rity turned out to be noth­ing more than a col­lec­tive bunch of wooden houses in swamps owned by peo­ple in string vests... But, closer to home, and where this is go­ing is that (sic) African Bank raised R2bn from domestic bond is­sue. And the ap­petite was such that the ABIL trea­sury saw the is­suance over­sub­scribed. At tighter spreads than be­fore. So, whilst the per­cep­tion out there ex­ists that the lenders of un­se­cured credit are creak­ing, the bond hold­ers, the fun­ders of the busi­ness are queu­ing up, check it out! Right, we will con­tinue to hold the com­pany and buy on what looks like a really good price.”

This (African Bank) bond is­suance hap­pens just a lit­tle over a month af­ter the coun­try’s largest un­se­cured lender saw its shares fall north of 6% fol­low­ing news that the Na­tional Credit Reg­u­la­tor would im­pose a R300m fine for what it says amounted to reck less lend­ing, in­volv­ing 699 loans worth R15.5m, which the bank sub­se­quently wrote off.

In l ate 2011 African Bank had detec t e d a ma­nip­u­la­tion of its old orig­i­na­tion sys­tem dur­ing a mi­gra­tion pe­riod to a new one, where a num­ber of em­ploy­ees had rigged af­ford­abil­ity cal­cu­la­tions for a num­ber of clients’ pro­files. This led to higher-than-af­ford­able loans be­ing re­warded to th­ese clients. Im­me­di­ately, African Bank got to work to trace where this was coming from. Foren­sic in­ves­ti­ga­tions and au­dits re­vealed the loop­holes, po­lice were in­volved, sus­pected crooked em­ploy­ees fired and law en­force­ment took over to do its job.

The lender then in­stan­ta­neously submitted its re­ports to the NCR and alerted the body to the mal­prac­tice that had taken place in some of the bank’s KwaZulu-Natal branches.

About 13 months later, lit­tle did Gavin Jones, Ex­ec­u­tive: Fund­ing and Li­a­bil­ity Man­age­ment, re­alise that th­ese events had be­come a ma­te­rial is­sue for the lender. They had not yet be­come pub­lic but were be­ing dis­cussed in the board­rooms of the NCR and African Bank In­vest­ments Lim­ited (Abil), African Bank’s hold­ing com­pany.

Jones was in Lon­don at the time, 30 min­utes away from com­plet­ing a

Gavin Jones

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