Nedbank Capital’s Nerina Visser works for one of the affected parties so was perfectly positioned to explain the R125m fine on the big four banks announced today by the SA Reserve Bank. Money laundering is a serious matter. But is it really necessary to levy fines ranging from R10m (Absa) to R60m (Standard Bank) for lax administration – a reflection of staff incompetence rather than willful criminality? Surely it would be better to focus on discovering where Organised Crime has used formal channels, and to then throw the book at the guilty bank? Or to incentivize banks to up their internal investigations to report nefarious practices? The signal sent by such a hefty administrative fine from the SARB is that red tape must be followed to the letter, no matter how impractical. The unintended consequence of which is even more red tape. – AH
ALEC HOGG: That’s the Andrew Bonamour operation. Remember, he’s now the CEO of Times Media Ltd and the biggest shareholder in Times Media Ltd. It reported a 52 percent rise in full year headline earnings per share, and a big jump in net asset value, too. The shares are trading at a significant discount to that level they have reacted this morning. Let’s get a more in-depth view though, on the markets and various other issues. Nerina Visser from Nedbank Capital is with us. No talking about the pebble cellphone issues, but you can tell us about the 125-million that the banks have been fined. You do look very spring-y.
NERINA VISSER: Thank you. I’m trying to counteract the weather outside, which is a bit gloomy. It should be happy. Today’s really like Thursday, seeing that tomorrow’s a mini Friday.
ALEC HOGG: Of course. We should actually call it Hump Day.
NERINA VISSER: No, not quite. Puza Wednesday. I don’t know. The fine from the Reserve Bank for the four big banks…we saw in the second half of last year that the Reserve Bank did a fairly extensive audit at all of the major banks, specifically focusing on FICA, anti-money laundering controls, client verification, and those aspects of it. As a result of that audit process each of the four banks were actually fined different amounts – in total, R125m – and the SARB was at pains to point out that there were no irregularities found, but that there was lack of sufficient controls, specifically in terms of identifying and verifying client details as well as controls around anti-money laundering activities.
ALEC HOGG: So if they tell you to do something at the Reserve Bank, they are going to fine you if you don’t.
NERINA VISSER: Yes, pretty much. In addition, as part of that, there’s an agreed timeline in terms of rectifying the deficiencies identified. There’s nothing, as I say, that was found, which was untoward. It’s just that the existing controls were not sufficient according to what the Reserve Bank required, and the banks have been given a certain timeline in order to rectify this lack of control. What I do find interesting about the timing of the announcement today, is that this is not new news in the banking sector itself. Each of the banks were informed of this well in advance. For example, Nedbank has already provisioned for its R25m fine in its 2013 financial results. This is nothing new, but the announcement today coincided then with the statement from all four banks, and also just to say that this happened.
ALEC HOGG: Regulations. Exchange control…more regulations: that’s the one thing that’s coming out more and more when I talk to business executives (not that much on air – they’re a bit scared), but off air, my goodness… They say the red tape is throttling them in this country.
NERINA VISSER: Absolutely.
ALEC HOGG: Wasn’t that a funny story about AMCU? I say ‘funny story’ because according to Cees Bruggeman’s piece ‘The Consulting Economist’, which he wrote last week… When the mines phoned, the AMCU members who were on strike…two thirds of them said they wanted to back, but were scared for their lives. No, AMCU’s saying ‘we have R1m that we’re going to give to our eighty thousand workers’. It works out to about R12.00 each. I don’t know how far they’re going to bus them with R12.00 each.
NERINA VISSER: I don’t know. It is actually so sad to hear the populist rhetoric really talking to a very constituency than the one they’re representing. I think that’s what’s particularly sad for me. There are thousands of individuals and families on the ground that are really having a hard time. When you look on the ground in the Rustenburg area, the amount of things for sale, whether it’s livestock, property, or whether it’s vehicles etcetera, people are really having a very hard time on the ground and I think the price the individuals have to pay after this extended period of time, should not be underestimated.
ALEC HOGG: The knock-on effect is also significant. I was talking to a businessman in engineering. He said ‘we supply the mines’ and now there’s no demand from the mines anymore, so they have to lay off people. He was telling me that Dorbyl laid off 1300 people as a direct consequence of the strikes. It’s not just AMCU’s leadership trying to make a point. The impact thereof stretches.
NERINA VISSER: The impact is obviously, on the workers and their extended families, which often extend as far the Eastern Cape, but then also quite rightly, into other related industries. Bear in mind that the platinum mines have declared force majeure which, as far as the suppliers are concerned… In other words, they are not going to be getting these supplies or acquiring the same supplies, and that’s where the likes of a Dorbyl and other engineering firms, find it very tough, currently.
ALEC HOGG: Nerina, you’re an expert on many things, but ETF’s are one of your specialities. These two new palladium ETF’s…would they be a place to park a bit of money now – that one and of course, the platinum ETF?
NERINA VISSER: Let’s maybe contrast platinum and palladium to gold. All three of them grew in the metal industry as precious metals. Platinum and palladium of course, have a very specific industrial application. On the one hand, we have the strike in the platinum industry in South Africa – one of the two largest suppliers in the world, other than Russia. Of course, Russia with their problems with Ukraine means they also have some concerns around the delivery and the supply into the platinum and palladium markets. Certainly, from that point of view there are very good fundamentals because of a lack of supply and the demand has not really tapered off to the same extent, so that would be very supportive of the platinum and palladium prices. On the other hand, you have the likes of China in terms of its growth figures and in particular, its demand for industrial metals coming out. We’re saying that the Chinese GDP is not that much slower, but it the makeup of that GDP is shifting. They are shifting from an infrastructure-led growth economy to a more consumer growth economy and clearly, the demand for industrial metals would be lower. When one looks at the outlook for the likes of the palladium ETF and the platinum ETF, those are the two major factors, which you have to weigh. I do think it’s a good investment. It depends how much longer the strike is going to run. Bear in mind that we know of the platinum inventory that the mines had – we don’t know about their palladium – so yes, I do think that the palladium ETF’s are a good investment and in particular, because they’re physically held. This is not some derivative or some synthetic instrument. This is actually buying a stake in a vault with physical palladium and platinum, held in London.
ALEC HOGG: Blackstar is a company Andrew Bonamour runs. The numbers are out today. Their net asset values are out today – R16.20. The price was R10.75. It moved up a little bit this morning in reaction to those numbers. It’s a cheap way into Times Media, I guess.
NERINA VISSER: Yes, I must admit that I don’t know all that much about that one, or follow it closely. However, when you look at those numbers in terms of the discount at which it trades to – that net asset value, it’s important, I’d say, to look at what makes up that net asset value. Is it tangible or is it intangible? If it were mostly tangible net asset value, the logic would say there’s definitely an opportunity for the share price to play catch-up.
ALEC HOGG: Go do your homework, in other words.
NERINA VISSER: If it’s intangible, then maybe we’ll think again.
ALEC HOGG: In closing, the BHP nine-month production results came out. There’s not a whole lot in there for South African consumption, excepting the aluminium smelter (Bayside), which is closing at the end of June and Hillside, which they say the future is still being assessed.
NERINA VISSER: Yes, that future is being assessed and I think they’re sending a very strong message not just to government, but also to the parastatals industries and of course, in particular, to Eskom. BHP Billiton have been making noises around the fact that they don’t really need to have exposure in South Africa. There are operations on the ground and it would obviously be quite devastating, especially in the Richards Bay area and to the Northern KwaZulu Natal area, should they decide to withdraw from the operations. Just as important I think, for the JSE and for the stock market would be if they were to decide that their listing here is not really justified. We started off by talking about regulation and about red tape, which is so necessary and so important, but it just means that it’s so much more onerous to have these multiple exchange listings around the world. If this is not a source of capital for the company – and it hasn’t been one for a long time – you do have to question, just from the company’s point of view, why do they remain listed.
