SORRY, DID YOU SAY R5bn?
Holes in the prospectus for the new YWBN Mutual Bank sparked an almighty war of words over just how smart an investment this really is
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Last Tuesday all the bells and whistles were laid on for the launch of the YWBN Mutual Bank in Sandton. Eye-catchingly, there was an unusual throng of ministers present: deputy finance minister David Masondo, small business minister Khumbudzo Ntshavheni, communications minister Stella Ndabeni-Abrahams and justice minister Ronald Lamola.
You can sort of see why, since the hot-button topics were catnip to politicians — a new black-owned bank, promising to lend to small businesses who are “forced to close shop due to lack of access to financing”.
Public protector Busisiwe Mkhwebane spoke at the launch, calling on legislators to “amend the regulatory framework” to allow the government to “safely” deposit cash in mutual banks. (Which seems unlikely, since the municipalities which illegally did this lost billions when VBS imploded.)
Nthabeleng Likotsi, founder of YWBN (it stands for Young Women in Business Network), said it was “designed for you black people, to finally have a bank that will be unapologetic and intentional in assisting with job creation”.
It made for neat PR, and within the first 72 hours, 1-million shares were sold, at R10 apiece, to thousands of investors.
The honeymoon didn’t last long.
Within hours, former Barclays investment banker Koshiek Karan had driven a bus through YWBN’s nebulous “prospectus”. Karan took issue with the unusual nonrefundable R100 “membership fee”, the fact that you can’t sell your shares for six years (“longer than most of your relationships”) and how you’ll only ever get dividends “if there’s money left” .
In particular, Karan took issue with the fact that Likotsi is selling those shares based on an “eye-watering” and “absurd” valuation of the bank at R5bn. It’s a “train wreck”, he said: “The R5bn is a guesstimate, no clear assumptions, no analysis, no benchmarking; pure guesswork”.
The way he sees it, the only people likely to make money will be Likotsi and the founders, who put in no actual cash, but will end up owning 44% of the bank — a stake which, at a putative R5bn value, would theoretically be worth R2.2bn.
Likotsi hit back on social media, arguing that her founders took a risk by starting the network in 2009, and “bank applications are not cheap; risk is rewarded”.
Later she added: “we can’t compare how whites register banks, and how blacks do it. We have no money guys — all we have is each other, skills, knowledge and education.”
Still, based on the FM’s analysis, it’s clear that the 36-page prospectus is painfully shy on detail. It promises the world, saying it will build “self-reliance amongst the unbanked, underserved and previously disadvantaged”. Nowhere does it discuss the new products that will help it achieve this.
Which raises awkward questions. How will these products trump existing bank loans? Will the bar for granting credit be lower? If so, how will you lend to a riskier market without charging the extortionate rates that the banks, or the likes of Finbond and Capitec, charge for unsecured credit?
Instead, YWBN Mutual Bank offers glib platitudes, like: “the bank will unpretentiously be a champion for bringing into focus the financial needs of small, micro and medium enterprises, the unbanked, underbanked and underserved.”
But it’s the R5bn valuation which seems most odd. Usually, the value of a bank is related to the future expectations of its profit, its cash flow, or the size of its loan book.
Take the 133-year-old Nedbank. It has 7.6-million customers, it has lent R797bn, partly to 302,000 small businesses including spaza shops, and yet is valued at R85bn — just 17 times the “value” of this new bank.
Yet YWBN’s prospectus contains no financials. Instead, it reveals only that it made just R195,000 a month over the previous year (partly by signing up members), and it has R21m in deposits. Not exactly an enormous capital base.
Bright Khumalo, an analyst at Vestact, said the prospectus was “light on detail and left me with more questions than when I started”. And the R5bn valuation is “half-baked”.
“I wouldn’t put my hard-earned money in something that has a vague prospectus, defensive management, and arguably no moat beyond barriers to entry. I believe founders should at least be forthcoming,” he said.
But the rubber hits the road when it projects its financial position to 2029. It says its assets (being, essentially, loans) will double to R12.05bn by then, while its liabilities (cash deposited at the bank) will climb to R662m. Yet, at many banks, deposits are used for loans — so without this, where will YWBN get enough money to lend out, at a fast-enough growth rate, to pay a decent return to these investors?
Nor, critically, does the bank have a licence yet. The regulator has a two-stage licensing process, and while Likotsi’s bank has passed the first stage, the Prudential Authority says it is “in the process of going through the final stage”.
Still, one senior banker, who asked not to be named, said the new bank shouldn’t be written off just yet. “They went through the first part of the licensing process, which is tough. I hold the Prudential Authority in high regard — it is one of the state institutions that still works well.”
But, he said, a R5bn value “seems preposterous”. Especially since lending in SA is difficult, so “they will need experienced people or very good scoring systems to compete.”
Likotsi’s response to being challenged didn’t help either. In response to Karan’s questions, she said she didn’t know where to begin to explain a mutual bank to a “small boy”.
Well, Karan replied, you can start by “explaining to people why you’re ‘crowdfunding’ a bank by using their cheap equity to fund a high-risk loan book”.
Likotsi’s bank may yet work. But with a parlous lack of detail about its “new products”, no financial statements, and an unhelpful fracas over the R5bn valuation, right now you’d have to say it’s only for the very brave.
Likotsi, in response to Karan’s questions, said she didn’t know where to begin to explain a mutual bank to a ‘small boy’