‘No silver bullet’ in bid to avert dreaded junk
No, that’s not something that would be on our radar screen, either from an economic point of view, or from a regulatory point of view.
That was the period where Nedbank was going to be sold to HSBC and . . . what we said is that we were always very comfortable with our own strategy and our ability to grow our own business. We felt that having a global bank as a parent, who had aspirations to grow into Africa, would accelerate that strategy. So when that deal didn’t happen, it really [was] to go back to our base case. And I think that’s exactly the position that Barclays Africa is going to find itself in.
It’s a distraction to a few people at the top, whose job it is to manage shareholder and stakeholder relationships, but for the vast majority of the organisation, they will continue business as usual under any ownership structure.
We’ve created a Nedbank that can grow successfully with what it’s got. We’ve got lots of opportunities here in South Africa and in particular to grow our transactional banking market share where it’s below what we’d like it to be. If we look at the rest of Africa, we’ve got a twopronged strategy: In Central and West Africa we take a partnership approach. We don’t want to grow the Nedbank brand and franchise there. We’d rather partner with Ecobank Transnational, which has been cemented with a 20% equity stake. In Southern and East Africa that’s where we’ll look to grow the Nedbank franchise. In the course of this year we are going to go from 38% of [Mozambique’s] Banco Único, to 50%. Global banking regulators are making cross-border mergers and acquisitions of big banks harder to do. As a consequence, you will see less and less of it.
We have a buy-back programme that we could execute. At the moment we are certainly not looking at specific buy-back purchases. For a bank to buy back shares you have to balance both cash and capital: our capital levels are strong at the moment at 11.3%, but we would still prefer to deploy capital in organic growth opportunities in South Africa and the rest of Africa. But if one looks further into the future and there is less and less organic opportunity to deploy capital, inevitably that will lead to capital creation within the banking enterprise, and then any sensible management team is going to say, well, let’s try and evaluate. Do we buy back shares, do we declare dividends, how do we manage EVALUATING: Nedbank CEO Mike Brown our capital base in the absence of organic growth? Right now we think we’ve still got enough organic growth opportunities.
I’m sure it’s accretive if you do the maths, but a buy-back is a piece of financial engineering, it will create a one-off benefit. But shareholders pay us to invest capital to grow the franchise over the long term.
I think everybody in business, government and labour should be worried about the implications of a downgrade.
If South Africa was downgraded below investment grade you would see the exchange rate weaken. As a consequence, inflation would rise and as a consequence of that, interest rates would rise and asset prices fall. Every South African gets poorer. And the government would have less money to spend on infrastructure and official programmes because more and more government revenues would be spent on interest.
So every South African should be concerned about our country maintaining its investment grade to enable us to attract capital at a price we can afford. And from a business point of view, the two bodies that have been most involved in trying to put forward recommendations are the Banking Association South Africa and the Association for Savings and Investment South Africa. Ralph and I are co-ordinating Basa on the one hand, and Asisa on the other.
We put eight points to the government that we felt were particularly important to avert a downgrade. But there’s no silver bullet. This requires an ongoing process. One of those points was to ensure that the state-owned enterprises become much more robust, and to prevent the drain that they currently have on the fiscus. So there’s been an offer from business to put forward people to sit on the boards of state-owned entities. At the moment there is receptiveness to that offer, but it takes a long time before there’s execution . . . So it’s early days yet.
Talevi is a BDTV presenter