Renée Bonorchis
3 December 2008
Johannesburg — FIRSTRAND, SA's second-largest banking group, yesterday painted a bleak picture in a trading update saying HomeLoans, WesBank and Rand Merchant Bank had been hit by the decrease in consumer spending and market volatility.
FirstRand's share price plummeted more than 10% on the news.
The group was still well capitalised, but CE Paul Harris said the board recognised recently an announcement was necessary. With four weeks to go until the end of FirstRand's interim period, the group realised normalised earnings a share would be 18%-26% lower than those of the same period next year.
However, the earnings could be up to a 9% improvement on the first six months of this year. FirstRand would still report an interim profit of R4bn-R5bn, and it looked like full-year profit would come in at R9bn to R10bn, Harris said.
"In the context of the world scenario, the results remain quite credible and quite good," Harris said.
Stephen Meintjes, head of research at brokerage Imara SP Reid, said the market should have expected the grim picture for results, but noted that the consensus view was still looking for growth.
It was expected that FirstRand may be the first to show a recovery, thanks in part to its high exposure to the consumer market, but Meintjes said this was doubtful.
FirstRand said FNB's mortgage book was experiencing significant increases in bad debts; WesBank's profitability was expected to be materially down; and RMB incurred significant losses following the collapse of online brokerage, Dealstream.
Harris said the R220m in losses on Dealstream's margin calls was written off, and the banking group did not hold out hope of recouping those losses.
The remains of the Dealstream portfolio, which consisted of significant stakes in Vox Telecom, Simmer & Jack Mines and Control Instruments were to be managed as part of FirstRand's private equity portfolio. RMB had incurred a further R260m in losses in its international equity portfolio. WesBank's MotorOne advances book in Australia had been sold at a loss of R220m and the sale of Worldmark had been put on hold, as had the joint venture between WesBank and Banco do Brasil.
"It's important to preserve capital at this point in time, so we have to walk away from some very good opportunities," Harris said.
He said the company was already seeing some signs of improvement in the arrears at WesBank, but HomeLoans would take longer to see signs of relief.
Johan Burger, FirstRand chief financial officer, said the troubles with the mortgage book would probably peak towards the end of next year and the group was also making plans in case there were any large corporate loan defaults. As yet there were no large retrenchment programmes and Sizwe Nxasana, FirstRand Bank CEO, said natural attrition and the redeployment of staff into growing areas of the business was helping with the bank's head count.
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