Can Absa be great again?
The PIC, for one, has trashed Arrie Rautenbach’s appointment. But the market is decidedly more bullish
● Arrie Rautenbach’s appointment as Absa’s new CEO has ignited a storm of comment — from concerns about racial transformation at the bank to applause for the lender for choosing one from among its own. But the important question is whether the newly appointed boss will execute the bank’s strategy to increase market share in its retail and business banking unit and drive its (hopefully far more profitable) growth in the rest of Africa.
Rautenbach has been working for
Absa since 1997. His eventual rise to the top job was lauded by the investment community — it’s no secret he was passed over in favour of Absa’s first black boss in 2020, when former Reserve
Bank deputy governor Daniel Mminele was appointed.
The Public Investment Corp (PIC), on the other hand, was aghast. It held 5.54% of Absa’s shares at December 31 and said it was “deeply” disappointed by the fact that Rautenbach is a white man. It plans to haul Absa’s board before it to ask why a black candidate wasn’t selected to fill the role left by Mminele last year, after just 16 months in the position.
Mminele quit over differences with the board’s strategic plans for the bank, but left on a “no fault” basis
— though neither
Absa nor Mminele has ever revealed exactly what those differences were.
At the time, the bank said “the parting of ways merely reflects divergent professional views and approaches”.
Analysts are choosing to focus now on Rautenbach’s stint as head of Absa’s retail and business banking unit. “We stress the importance of Absa making the hire internally, especially with retail experience, in the journey of turning the retail division around,” Standard Bank Group Securities analysts said in a note to clients.
“Arrie’s appointment was probably something of a surprise to the market,” says Chris Steward, sector head of financials at Ninety One. “I guess the core view was probably that [the bank] would appoint Jason Quinn as CEO and Punki Modise as CFO. That said, I think the market has taken the appointment reasonably well.”
Absa has declined to be interviewed for this article, saying: “We will need to give Arrie a bit of time to settle into the new role before he’ll comment beyond the media statement.”
Steward says: “Arrie has a wealth of experience across the areas in Absa that really matter from an investment perspective. Absa is still predominantly an SA commercial and retail banking entity.”
From outside Absa, it looks as if “he’s done a pretty decent job in stabilising the retail and business operations and putting them on a better footing”, says Steward.
Absa’s retail and business banking unit has drawn much criticism for losing market share and posting dwindling customer numbers over the past couple of years. However, in the fiscal year to endDecember, retail and business banking’s profits — excluding the effect of provisions for bad debts — posted a major comeback. In home loans, pre-provision profits grew 15% and in vehicle and asset financing (which includes vehicle loans) the same measure jumped by 18%.
Absa is hardly the basket case bank that it’s been made out to be either. While it suffered no end of flip-flops thanks to its on-again off-again status as a Barclays subsidiary, Absa’s share performance over five years — a gain of 78.4%, including dividends — is comfortably better than Standard’s 60.6% increase and Nedbank’s mere 27.4% rise. FirstRand stock, on the other hand, has risen 110% over
five years, including dividends, while Capitec is the clear winner, with a 222% rally. In the year to date Absa shares are up just under 25%, second-lowest among the top five banks, with Capitec the worst performer, on a rise of 15% at the time of writing.
Quinn, Absa’s CFO, acted as interim chief after the departure of Mminele, while Modise acted as CFO. Following Rautenbach’s appointment, Quinn will return to his position as CFO and Modise will become the new head of retail and business banking — a move some punters view as her grooming to become Absa’s next CEO.
The question now turns to Absa’s ambitions on the rest of the continent, where the bank needs to grow market share against SA competitors such as Standard Bank, Africa’s largest lender by assets, and Ecobank, in which Nedbank has a large shareholding.
Absa’s African and regional operations hold “significant scope” to increase the bank’s performance in future, according to Steward. “The retail and business banking franchise across the continent is probably Absa’s singlebiggest opportunity to create differentiated growth for the group into the future,” he says.
By Absa’s own account it expects GDP growth in its African operations to be at least double the rate of SA economic expansion for a couple of years. Absa’s
African and regional operations contributed 23.6% to revenue in 2021, according to its financial statements. However, its contribution to normalised earnings was a meagre 2%, says Steward.
This means it’s imperative that Absa roll out its domestic successes — especially in terms of modernisation — across the rest of its African operations to capitalise on the economic growth and rising middle class on the continent.
Rautenbach’s appointment, even with all the noise surrounding it, is a “significant event in Absa’s turnaround journey”, as SBG Securities points out in its note. “While the strategy has been well supported by the board and the capable interim executive appointments [being Quinn and Modise] in recent history, this is the first time that Absa has had the necessary experience and competence in top leadership as 2009, in our view.”
Hopefully some determined focus will return to the top management to realise Absa’s ambitious strategy and cement it as a pan-African commercial lender.