Nedbank’s record shows not all bankers are nerdy

NEDBANK has been on a high, as if it has been indulging in some green substance. The greenbranded bank’s share price has been flying, hitting a record high of more than R215 yesterday.

Since Mike Brown, “a nerd banker”, took over as CEO in March 2010, the bank’s share price has rocketed from R123 to its present level, an appreciation of 74%.

If you had put in R100,000 when Mr Brown was appointed, today your investment would be worth R174,000, in just over three and a half years.

It’s not only the share price that is flying. Earnings are on the upside too. Nedbank said yesterday that despite the tough and volatile economic environment it was confident it would still grow diluted headline earnings per share at the same rate as — or faster than — gross domestic product (GDP) growth, plus the consumer price index (CPI), plus 5% in its 2013 financial year.

If we assume inflation at the 6% recorded last month, and we conservatively price in GDP growth at 2%, the bank expects to grow diluted headline earnings per share by about 13% this year.

Although Nedbank is looking solid, some things the bank has done in the past have been contrary to what nerd bankers are expected to do. I think it is fair to say that some of the decisions made in the late 1990s were dumb, in hindsight. No proper nerd banker can justify acquiring some firm and then selling it for a fraction, and at a loss.

In October 1999, Nedbank, then known as Nedcor, bought the corporate law advisory and consultancy business of Edward Nathan & Friedland for a whopping R400m. Five years later the business was sold for R50m. In addition to the selling price of R50m, available cash of R33m in Edward Nathan & Friedland was paid to Nedbank.

Nedcor noted then that the overall effect of the sale was a loss of R20m in 2004.

When Nedcor bought the Edward Nathan & Friedland business, there was a view that Nedcor Investment Bank had no presence in the corporate finance market. So the tale goes that in 1999, Richard Laubscher, then the CEO of Nedcor, became aware through discussions with Michael Katz, that Edward Nathan & Friedland was considering merging with an international law firm. I suspect that this law firm in question is a big one from New York.

Anyway, Mr Katz was a nonexecutive director at Nedcor and was also chairman of Edward Nathan & Friedland. Nedcor went on to note that “because of Michael Katz’s position, great care was taken not to involve him on the Nedcor side when the acquisition of Edward Nathan & Friedland was considered.” So Mr Katz recused himself.

The story goes that following the acquisition of the law firm, Nedcor Investment bank built a highly rated corporate finance team and moved nicely into the corporate advisory space. We are told that other benefits also flowed, and Nedbank Corporate was ranked num- ber one in the annual Ernst & Young survey of corporate finance advisers in SA.

Then some magic happened in 2004 and Nedcor decided to sell, because the business was noncore and the bank wanted to focus on core banking activities.

I wonder if the word “core” was raised in October 1999, when the law firm was acquired? How can a business be regarded as key and then relegated to noncore? Anyway, those were the days.

The other un-nerdy move that Nedbank did was to segment its customers according to the bank’s brands between 1994 and 1998. So a certain part of the population banked with Peoples Bank — which was perceived to be for the lower class. Nedbank, the brand, positioned itself as a banking hall for wealthier clients.

Nedbank paid dearly for this and arguably lost a lot of customers. Ingrid Johnson, the head of retail and business banking, and her team had to work hard to try to shred the image of a bank for the wealthy in Nedbank. The bank had to hire people such as Ciko Thomas to help sell the brand to a broader market. By the way, Thomas will sell water to a whale. He is a marketing guru.

To cut the story short, as Nedbank charts a new path, its leadership will have to think carefully before acting on anything that will reverse gains made in the past.

From next month the window will open for Nedbank to exercise its option of converting its $285m loan to a 20% stake in Ecobank. With the skeletons coming out of Ecobank’s closet, the bank’s executive must think carefully before taking up a stake.

Rushing to take up a stake without due diligence could equate to another dumb transaction. After all, Nedbank has until November next year to decide.