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