Mercantile sale attracts scores of bidders, says bank

Caixa aren’t willing sellers. They’ve had so many offers over the years and have never wanted to sell Karl Kumbier CEO of Mercantile Bank

● One of South Africa’s banks will be in a fresh pair of hands by the end of this year, if the sale of niche lender Mercantile Bank runs according to plan. First announced in March by its state-owned Portuguese parent, Caixa Geral de Depósitos, the sale was given the go-ahead by the Portuguese government just before Christmas.

It is now under way in earnest, with scores of interested bidders, according to CEO Karl Kumbier. Between 40 and 50 buyers, most of which are local, have expressed interest in buying the bank, Kumbier said this week.

The ideal buyer would be one that supported Mercantile’s ambition to become South Africa’s top business bank and which could fund acquisitions of complementary financial services businesses, he said.

Mercantile primarily banks entrepreneurs and small- to medium-sized enterprises. It has about 3 500 SME clients and provides a private banking offering to the 12 000-odd entrepreneurs linked to these businesses. It services an additional 18 000 merchants with credit card facilities and has 13 000 SMEs in its rental finance business.

The sale comes amid considerable change in South Africa’s banking sector, with three new banks entering the fray. Low-cost digital bank TYME launched last year, with Discovery Bank and Post Bank expected to open their doors this year. Barclays plc recently sold its majority stake in Barclays Africa to local fund managers, and Old Mutual will soon unbundle its majority stake in Nedbank to its shareholders.

Mercantile Bank has a long history in South Africa, dating back to the parent corporation’s establishment of Bank of Lisbon in 1965 to serve the Portuguese community. Mercantile, formed in the late 1990s, merged with Bank of Lisbon to form Mercantile Bank of Lisbon, which listed on the JSE.

Following a string of rights issues to raise capital in the wake of South Africa’s mini banking crisis in the early 2000s, Caixa came to own a 92% stake in the bank. It became the sole shareholder when the bank was delisted in 2012.

“Caixa aren’t willing sellers. They have had so many offers to buy us over the years and have never wanted to sell,” said Kumbier.

The European Central Bank has ordered Caixa, a state-owned bank and Portugal’s largest by assets and deposits, to offload Mercantile as a condition of a loan restructuring agreement.

Although holding less than 1% of South Africa’s loan market, Mercantile’s R13.3-billion balance sheet makes it a larger bank by assets than closest rival, JSE-listed Sasfin. At the end of June, Mercantile had gross loans of R8.3-billion with deposits of R9-billion.

In a December credit opinion, Moody’s Investors Service said Mercantile’s asset quality was likely to come under pressure, owing to South Africa’s challenging economic conditions and the bank’s relatively high credit concentrations. Positively, the bank’s historical asset-quality performance was robust, while its capitalisation and liquidity were sound, Moody’s said.

The ratings agency rates Mercantile’s local currency credit as being investment grade, in line with other domestic banks.

Adrian Cloete, a portfolio manager at PSG Wealth, said Mercantile lacked the well-diversified funding base enjoyed by its peers to fund its lending book. “Partnering with another business to build scale makes good business sense for Mercantile. [It] faces intense competition as it is up against very strong existing banks with good operations in the business banking arena.”

The big four banks declined to comment on whether they were interested in buying Mercantile, but such an acquisition is unlikely to win Competition Commission approval. An insurance company, telecommunications firm or BEE consortium would make for a more likely buyer.

Mercantile is likely to go for between R2.5-billion and R5-billion, considering that its net asset value is projected to reach R2.5billion at the end of 2018 and banks generally sell for between one times to two times their book value.