Cash-flush Standard Bank on the prowl

IS AFRICA’S largest bank, Standard Bank, gearing up for another mammoth deal?

Speculation gained ground this week after the bank posted a glowing set of financial results for last year with earnings rising 15% to R17.1-billion.

The comforting bottom line shows that the bank’s bet on the African growth story is coming up aces, especially after leaving Argentina, Russia and London in the past few years.

Sim Tshabalala, who now runs the bank alongside Ben Kruger, said: “There are massive profit pools on the African continent.”

Revenue from the rest of Africa outside SA rose 44% last year to R3.5-billion, masking a tougher experience at home.

But so much capital lying unused on its balance sheet meant its return on equity amounted to only 14.1%, lower than that all its competitors.

On radio this week, Tshabalala was asked if Standard Bank might consider buying the ailing African Bank (market value R15-billion, with the share price down 62% in a year).

“No,” he said, but confirmed that the bank would certainly consider doing any deal that would provide good returns.

Investors are clearly expecting it to make some move soon, and they piled into its shares this week. Since Tuesday, the share price rose 5.7%. Market appetite for its stock, ambivalent until this week, appears to have been heightened.

The results are good news for all the banks in the light of the shaky investor sentiment for the sector. Banking shares are still some of the cheapest investments on the JSE, trading on an average price-to-earnings (PE) ratio of 12.6, compared with the 18.5 of the All Share index.

The greatest threat in the sector is that desperately squeezed consumers will continue to default on debts. For this reason, rating agency Moody’s is keeping South African banks on a “negative outlook” for a possible downgrade.

Still, Africa is Standard Bank’s good-news story. It has a footprint in 18 countries north of the Limpopo, totalling 557 branches and 1 223 ATMs.

Hooking up with the Industrial Commercial Bank of China (ICBC) in 2007 when the Chinese bought a 20% stake has also been a success, though perhaps in unexpected ways.

ICBC, the biggest bank in the world, has deep pockets, and seems happy to pick up whatever Standard wants to drop. Not only did it buy 80% of Standard Bank’s stake in Argentina, in January it picked up 60% of its London operation, Standard Bank plc, for $765-million.

On the face of it, the London deal seems great for the South African bank. Without having to manage the onerous costs and minimal returns of the operation, Standard Bank gets the benefit of the trade portal to the rest of the world.

Part of Standard Bank’s strategy is to use this hook-up to “expand its global markets business outside Africa to focus on China by becoming part of China’s leading banking group”.

The China connection has also been an insurance policy in Africa, where the Asian country has growing financial sway.

While Absa’s deal to buy Barclays’s African operations gives Maria Ramos’s bank more heft on the continent, Standard Bank is still the leader north of the border, especially in the more volatile countries such as Angola and the Democratic Republic of Congo.