Banks in play as Old Mutual heads home?

IT’S been a subject of discussion for years, but it finally looks like Old Mutual is preparing to relocate its head office back to South Africa. Eighteen years and R100-billion-plus later, 1990s CEO Mike Levett’s dream of creating a globally competitive financial services group with origins in Africa and headquartered in London is coming to what many see as an inevitable end.

Levett oversaw the demutualisation of the group and took it to a London listing to raise capital for international expansion, as happened with many other South African companies.

Nearly 20 years later, Old Mutual remains an emerging markets business with nearly 75% of its profits still emanating from South Africa. Old Mutual never really cracked the big time. It made a series of ill-fated US acquisitions and added to its international footprint through the purchase of Skandia. Unlike Sage, which no longer exists due to its desire to be American, and Discovery, which cut its losses at R1-billion within a couple of years of seeking to take on the US establishment, Old Mutual persisted in its efforts to be global and survived its big adventure, if only just.

Now a growing number of South African investment funds are putting greater pressure on Old Mutual to return home. It would lower its cost base, simplify its structure and would get it to more accurately represent its core business.

After nearly two decades of trying, the time has come to be honest.

“No global analysts of consequence research them in any significant detail,” says one senior South African fund manager. “Their foreign listing and head office is costing them an arm and leg, with no benefit.”

Numerous sources point to the Old Mutual UK team agitating for a separate London listing. That could happen within the next 18 months depending on market conditions and a rebuild of its IT platform. It’s also feasible that the business could be sold. If it doesn’t happen, the view is that Old Mutual will continue to trade at a discount to what it, but few others, might regard as its London peer group.

The departure of Julian Roberts, the former financial director-turnedCEO credited with the turnaround of the business after its near collapse courtesy of big US bond exposures in 2008, and the appointment out of the Standard Bank group of former Liberty CEO Bruce Hemphill, suggest big moves are afoot. Former finance minister Trevor Manuel, who initially approved the UK move, recently also joined the board. Hemphill is a warhorse capable of making tough calls for longer-term shareholder value.

It raises several issues for the group, which is erecting a considerable new head office in Sandton across the road from the Gautrain station. Will that become the new global headquarters of an Africa-focused emerging markets business? It seems likely that a Johannesburg headquarters is on the cards.

It might also provide the insurer with an opportunity to finally tackle the Nedbank question. For years after 2008, Roberts was adamant that the banking business should be spun off separately. Old Mutual upped its stake in Nedbank in the early 2000s courtesy of a R5-billion capital injection to around 65%. Not long after the financial crisis began, suitors sniffed around Nedbank, which was abandoned at the altar by HSBC. Since then, global banks with their own worries have moved on.

It seems likely that Old Mutual, as part of its global restructuring, will want to get out of banking, which raises an interesting conundrum for South African regulators as Barclays plc is also keen to focus its attentions closer to home.

So for the first time in history, two major South African banks might be in play at the same time. It raises prospects for the Public Investment Corporation to take a big stake in a domestic bank, assuming there are no global buyers willing to take a long-term view. Never a dull moment. Whitfield is a multi-awardwinning financial writer and broadcaster