Discovery launches its bank this week
● Discovery will finally launch its bank on Wednesday, having cleared half of the hurdle that delayed the health insurer’s entry into the banking space in the last quarter.
On Friday, Discovery announced that it had managed to raise the R1.85bn it needed to buy out FirstRand in an accelerated bookbuild that was fully subscribed in less than 24 hours.
The company will issue more than 11-million new ordinary shares to qualifying investors when it launches the bank for R162 per share, a price that represents a 2% premium to Discovery’s average share price in the past month.
“It’s a fairly good price given that their share has been volatile this year, in line with the market. But fundamentally Discovery’s financial results were better than most of their peers,” said Warwick Bam, head of research at Avior Capital Markets.
Bam said Discovery had the advantage of being a credible competitor because while it is new in the transactional banking space, it has had a credit card offering for some time through the joint venture with FirstRand.
“They are not starting from scratch but we’ll have to wait and see how quickly they can gain scale. My expectation is that they will choose capital-light products to launch first. I will be very surprised if they launch a fully fledged retail bank from day one,” he said.
Discovery has given little information about the product suite that the company plans to offer in its bank. It only indicated that it will be a “fully fledged retail bank”. The insurer was granted its banking licence in October last year and had planned to launch the bank in the third quarter of 2018. However, the launch was delayed as the Reserve Bank wanted the company to reduce FirstRand’s 25.01% stake in Discovery Bank and gave Discovery five years to unwind the shareholding.
But Discovery CEO Adrian Gore thought it made more sense to just buy out FirstRand, and now that the company has managed to raise the required capital it will be able to forge ahead with his vision.
Some of Discovery’s s directors, including Gore, subscribed to about 1.5-million shares, valued at R240m, to partially fund the FirstRand acquisition.
FirstRand had a card joint venture with Discovery in which the bank issued Discovery-branded credit cards. Through this venture, FirstRand owned a 25% stake in the new bank. On Friday, Discovery said it will provide an update on when it expects the acquisition of this stake to be finalised during the bank’s launch.
As Discovery launches its bank, it will only have a few months before it faces stiff competition from new rivals. Michael Jordaan’s Bank Zero is already in its alpha testing phase and is expected to be launched early in 2019.
TymeBank, which was recently taken over by Patrice Motsepe’s African Rainbow Capital, is also expected to be launched soon. Postbank also recently obtained a banking licence.