Financial Mail - Investors Monthly
COVER STORY
Most of Standard Bank’s global burden has been offloaded and the focus from now on will be on growing its conventional banking business in Africa, writes Gillian Jones
Standard Bank’s years of dominance over the local banking pack has ended, but it has set its sights on becoming the leading financial services organisation in Africa
On the release of Standard Bank’s full year results earlier this month, joint CEO Sim Tshabalala said the bank could not promise there would be no more surprises, given that it was in the business of managing risk. But he did offer assurance that SA’s second-largest bank by market capitalisation was determined to stick to its Africa strategy.
“When we have lost money it is usually in cases where we have been off strategy. We have now closed down everything that is not within our strategy.”
The sale of a 60% stake in Standard Bank’s global markets business unit to the bank’s largest shareholder, the Industrial & Commercial Bank of China (ICBC), was finally completed in February.
This business, based in London, has been a major drain on Standard Bank’s coffers, with headline earnings per share for the year ended December increasing by only 1%.
However, when ICBC’s 60% stake in the global markets business is excluded from the results, headline earnings from continuing operations increased by a healthier 12%.
The sale of the global markets business marks the end of a tough four years during which the bank unwound its expansion efforts into emerging markets outside the African continent.
The bank’s ambitious plans to become a leading emerging markets bank were cut short by the global financial crisis in 2008. As a result, Standard Bank sold assets in Russia, Turkey, Argentina and Brazil and used the cash to invest in growing its African presence.
This is in line with the bank’s revised strategy of becoming the leading financial services organisation in Africa.
However, the bank has lost its leading place among investors in SA. Last year, FirstRand overtook Standard Bank in market size, putting an end to the dark blue bank’s years of dominance over the local banking pack.
FirstRand’s market capitalisation of R312,8bn is now more than R60bn ahead of Standard Bank’s R251bn.
It is hard to imagine what Standard Bank would have to do to close this gap, given that FirstRand appears to be able to do little wrong.
Standard Bank has not only suffered the burden of its capital-intensive emerging markets businesses; it has also been hit by a number of other mishaps.
The global markets business made a headline loss of R3,8bn for 2014, partly due to writedowns related to aluminium fraud in China. About $167m of aluminium that the global markets unit claimed it owned and held in bonded facilities in Qingdao port was found to have been pledged as collateral numerous times. Standard Bank has made a valuation adjustment of $147m to account for this.
More than 20 banks are said to have been affected by the fraud. Standard Bank, which is not accused of wrongdoing, is taking legal action and claiming from insurance to attempt to recover the losses.
The bank was also fined by UK and South African regulators in the past year for having inadequate controls to combat money laundering.
In another case, the bank, alongside BASF, Goldman Sachs and HSBC, has been named in a class action suit in New York for allegedly manipulating the platinum price.
SA’s other major banks have not hit the headlines for the wrong reasons as often as Standard Bank has in the past year.
Tshabalala says banks lose money either because of market forces or when they are defrauded by their clients or staff.
The major loss suffered in the Chinese fraud case “was an unusual event because it was such a sophisticated and well