24 August 2010

South Africa: Set On Being Africa's Most Admired Bank

Johannesburg — FROM operating in the shadows of its three larger rivals, Nedbank could by the end of November be catapulted into the big league, if HSBC succeeds in prising it away from its majority owner, Old Mutual.

Yesterday, Old Mutual and HSBC ended frenzied market speculation in both SA and the UK about the future of Nedbank. They confirmed separately that HSBC had submitted a formal offer to acquire a controlling interest in Nedbank, which had a market capitalisation of about 9,4bn as of Friday.

On paper, it seems to be a done deal, if comments by Old Mutual CEO Julian Roberts yesterday are anything to go by.

He told Business Day HSBC was the right investor to partner with Nedbank, whose management he said was determined "and very capable" to grow the business in SA and beyond.

Mr Roberts said while the group wanted to sell its entire 53% stake in a potential 6,8bn deal, the final price would depend on the price minority shareholders would accept.

It was possible, he said, that Old Mutual could still retain a minority stake in Nedbank, depending on how many minorities chose to take the offer.

The investment by HSBC, with a market capitalisation of more than 170bn and ranked the world's fourth largest, gives Europe's top lender a bigger presence in Africa's foremost economy and allows it to tap into the fast-growing continent.

An eight-week exclusivity period has been granted by Old Mutual to HSBC, which now has six weeks to complete its due diligence of Nedbank.

Yesterday, sources said the Treasury had reacted with cautious optimism that the deal would be good for the country.

Old Mutual has allayed concerns about funds being repatriated offshore by promising to reinvest some of it locally, without being specific.

"It is exciting," said Nedbank CEO Mike Brown, when asked how he felt about the possibility that he could be soon reporting to a new shareholder.

"I think certainly it is an interesting proposal and from our perspective, our initial assessment is that HSBC represents an attractive international partner and shareholder of reference. It can provide benefits in our market and also enable us to expand within SA and Africa," Mr Brown said.

According to analysts, the transaction would be a win-win deal for all three firms.

For HSBC, which prides itself as the "world's local bank", it would herald its first foray into retail banking in Africa, where it will compete with such major lenders as Standard Chartered Bank and Standard Bank and its Chinese shareholder, ICBC.

Ironically, Standard Chartered was rumoured to be also keen to buy Nedbank, but seems to have got cold feet.

HSBC's investment in Nedbank would give the lender access to a broad range of world- class products, skills and a strong balance sheet to grow the business, an analyst said.

For Old Mutual, selling Nedbank accelerates Mr Roberts' plan to simplify the group's complex structure, and build a long- term savings, protection and investment global business.

He also wants to reduce the group's debts by at least £1,5bn.

Old Mutual has already sold its troubled US life insurance business for 350m, to hedge fund Harbinger Capital.

Mr Roberts said he already has an idea of how he would use the windfall from the Nedbank sale, apart from paying down debt. That tentative plan includes investing locally, and in emerging markets, he said.

But it is Nedbank that will benefit most, analysts say, pointing out how Absa - and in particular Absa Capital - was enjoying being part of Barclays Bank. For the first time, Nedbank would become part of a global international bank, whose CEO Michael Geoghegan wants HSBC to expand its "unrivalled franchise" in emerging markets.

"For Nedbank I think the greatest benefit is just being part of such a reputable and international bank," a local analyst said of the deal.

For Mr Brown, it would be a match made in heaven, providing a firm platform to pursue his goal of creating what he calls Africa's most admired bank.

"We have a compelling vision to build the most admired bank in Africa and a growth strategy even under the current ownership .

"We are the top performing bank share over the past five years and we think with HSBC, we should be able to accelerate this (growth) strategy," he said.

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