Accountants lack Kirkinis’s exuberance
FORMER African Bank Investments Limited (Abil) CEO Leon Kirkinis had a guilty pleasure: a helicopter that he took out for a regular spin. While he always downplayed his wealth, drawing a salary smaller than other bankers’, this was the one expensive toy.
When I teased him about it a decade ago, his personal assistant phoned me the next day and said he wanted to take me flying. So early one morning we took off from Grand Central, circled Johannesburg and his Northcliff home, and headed off to the Magaliesberg mountains.
That was Mr Kirkinis in his element — a master of all he could survey. He had built Abil from a dysfunctional shell, snapping up various lending businesses. By then it was one of few South African banks able to tap international funding markets.
He had been a specialist in development finance, figuring out how to tap formal capital markets to fund economic infrastructure. Mr Kirkinis genuinely believed that the world’s problems could be solved if we just figured them out. He had already proven what others had thought impossible: that a bank could be funded without a need to turn to depositors.
Mr Kirkinis was convinced that unsecured lending was a positive force in society. Even at interest rates that the middle class would balk at, he saw his bank as one that satisfied consumer demand in an efficient and cost-effective way.
When the National Credit Act imposed caps on interest rates, Abil came up with credit life and retrenchment insurance to charge on top of it. This was, he said, for the benefit of consumers, saving them from bad luck.
When consumers began to show distress, Mr Kirkinis saw Abil as the solution rather than the problem, introducing consolidating loans that allowed borrowers to reschedule their debt.
He was, undoubtedly, a deft manager. When unsecured lending faced its first major crisis in 2002, Abil was the survivor, while its biggest competitors, Saambou and Unifer, hit the wall.
Mr Kirkinis anticipated the problems that his competitors did not, steering Abil away from civil servant payroll deductions while others gorged. Back then he was highly risk averse, knowing that one mistake could kill his bank. He had seen it happen to many small banks. He had one core mantra: stick to what you know.
In September 2007, Abil bought furniture retailer Ellerines for close to R10bn. A month later US stock markets peaked, before beginning their plunge into the financial crisis. Consumer confidence evaporated. Ellerines’ furniture sales were made at a loss, with shrinking profits made from the financing attached to them.
Ellerines stabilised two years later after major management attention. That gave Mr Kirkinis back some shaken confidence.
Mr Kirkinis genuinely believed that the world’s problems could be solved if we just figured them out
Abil lifted its lending dramatically. Capital markets eased up, and his mastery allowed the bank to gain funding again. It was then that it made the loans that, along with losses from Ellerines, would eventually kill the business.
When the news became bad, Mr Kirkinis would rally the troops. It’s a rough patch but we’ve had those before and always survived. Those who disagreed didn’t last long; a series of senior executives left over the past few years.
Competition and tough conditions meant the loan splurge had been done at the worst time. Defaults were far higher than the bank had anticipated. The consumer market turned and Ellerines again became a millstone.
By the end of last year, it was clear the bank needed a major equity injection. His mastery of the capital markets was proven again, getting shareholders to stump up R5.5bn of cash, underwritten by Goldman Sachs.
There were signs of improvement in new lending, done on a much lower risk model since the middle of last year. Mr Kirkinis saw that as evidence of things coming right. But the accountants and regulators insisted on yet more provisions and more writedowns to the furniture business. When the announcement of R3.1bn in losses for the six months to end March came out in May, investors were incensed.
Mr Kirkinis offered to resign, but the board rejected it. But eventually the naysayers overwhelmed him. A trading update was expected for August 6. Ratings agencies had said they would review their opinions based on what it said.
At 11pm on August 5 Mr Kirkinis resigned and this, time the board didn’t stop him.
The fuel that kept Abil moving was his energy and exuberance, a culture that will seem very strange to the accountants now in charge. I don’t envy them.