Kirkinis lives to lend another day
EXPECTATIONS that Leon Kirkinis, CEO of African Bank, might have to pay the price for his seeming inability to pull the unsecured lender out of a value-destroying earnings slide find little support among major South African shareholders.
The optimism-at-any-cost approach that characterised Kirkinis’s management and helped it grow into the hugely profitable player that reconfigured the microlending market appears to be contagious.
Karl Leinberger, chief investment officer at Coronation Asset Management, which is Abil’s largest shareholder, believes Abil will survive the current crisis in the unsecured lending market, and emerge as one of the two major players in a consolidated industry alongside Capitec.
Leinberger said Abil was taking pain now because of its poor lending strategy in the two years leading to June 2013. “The hangover from that period will last for at least another year, but I hope the provisions recently announced will cover the write-offs associated with credit extended in that period,” he said.
Coronation holds 22% of Abil, and is one of several blue-chip investors that increased their stakes in Abil after last December’s R5.5-billion rights issue, which was pitched at R8 a share.
Kirkinis also increased his shareholding in the company at the time.
In November, Kirkinis said: “I am confident that we have taken the required action over the past few months to position the business for improved profitability over the medium to long term.”
Abil’s second-largest shareholder is the Public Investment Corporation, which holds 15%, followed by Old Mutual with 6.3% and Sanlam Investment Management with just over 5%. None of them was willing to risk saying anything.
Still, analysts believe the deep pockets of Abil’s shareholders will guarantee the company’s survival.
“They have the necessary resources to ‘make a plan’, but whether or not that plan will include Kirkinis is another matter,” said one analyst.
But the analyst said shareholders deserved the value destruction they suffered over the past 18 months because they allowed Kirkinis unbridled control.
However, Leinberger would not comment on whether it was time for Kirkinis to resign. “There’s no doubt mistakes were made. We need to strengthen the executive management and the board . . . we need more depth at executive level and also at nonexecutive board level.”
As Leinberger sees it, the survival of Abil is in the interests of its customers, predominantly blue-collar workers.
“These people need access to unsecured credit, and Abil provides it consistently through the cycle, and at much cheaper rates than its regulated or more opportunistic competitors do,” he said.