Bank stocks dive, strike chaos looms; Eskom Mr Fixit lacks ‘wow’ factor – BUSA; Steinhoff insider trading

By Jackie Cameron

  • Banks are taking strain, with the weight of bad news about the economy knocking JSE listed shares. Bloomberg reports that the index has dropped 15% since President Cyril Ramaphosa pledged a relentless focus on growth in his June 20 State of the Nation address.
    Valuations reflect reduced expectations for profits as the grim South African economic outlook weighs on lenders. The average ratio of share price to estimated earnings for the banks has dropped to 9.2 times, compared with a 5-year average of 10.5, says the news service. The FTSE/JSE Africa Banks Index’s has fallen 6.6% this year, compared with a decline of 1.1% for an index of emerging-market peers. Nedbank Group blamed a worse-than-expected economy when it reported first-half results, cutting its forecast for 2019 GDP growth to 0.5% from 1.3%. More urgency is needed in structural reforms to stem economic and fiscal deterioration, the country’s fourth-largest lender said. “The banks’ performance is a classic sell-off due to our macro environment,” said Casparus Treurnicht, a money manager at Gryphon Asset Management. “Consumers and South African business are taking strain and investors understand this will filter through to the bank.
  • South Africa’s biggest financial union is threatening to disrupt the country’s banking industry by leading its 73,000 members on a strike next month, in what would be its largest industrial action in almost a century, says Bloomberg. The planned two-day walkout will target lenders that have consulted staff over job cuts in recent months and other institutions that employ members of the Sasbo union, according to General Secretary Joe Kokela. Sasbo wants banks to consider options other than retrenchments and begin a program to re-skill employees whose positions are at risk, he said in an interview on Monday. “If the banks say no, the struggle continues and we will make sure we shut down the system until they come to their senses,” Kokela said. “We can even make sure replenishment of ATMs are kept to a minimum so that the country runs short of money.” As Bloomberg reports: South African lenders are cutting jobs as they seek ways to lower costs and contend with slow economic growth and fresh competition in the industry from branchless, digital entrants such as TymeBank and insurer Discovery. Job cuts in the country are particularly sensitive as the unemployment rate has risen to 29%, the highest in more than a decade. Absa, Standard Bank and Nedbank have all consulted with Sasbo in recent months over cuts. Absa is restructuring operations across its business units, Standard Bank is closing 91 branches.
  • Credit Ratings agency Moody’s warned on Tuesday that Eskom urgently needs a turnaround plan as its capital structure is unsustainable. The Moody’s report sent the rand to a two-month low, reports Reuters.
  • Business Unity South Africa’s President Sipho Pityana is reportedly “underwhelmed” by the appointment of SA Institute of Chartered Accountants CEO Freeman Nomvalo to lead the turnaround at Eskom. In BUSA’s August newsletter to its members, Pityana shared his disappointment in BUSA’s August newsletter, reports Fin24. Public Enterprises Minister Pravin Gordhan announced last week at Eskom’s results briefing that Nomvalo has been seconded to serve as Chief Restructuring Officer (CRO) at the state entity. Before joining the accounting body, Nomvalo was South Africa’s accountant-general at National Treasury for nine years, where – among other things – he set up financial reporting standards for SOEs. ‘BUSA’s leadership is not happy with the way government has handled the crisis at Eskom, and particularly what it branded a “lack of urgency” in the search for a new CEO,”continues Fin24. “We are not satisfied, for example, that Eskom only started last week to look for a new CEO, despite having two months notice from the outgoing CEO. That means another three months, at best, without a permanent CEO. This lack of urgency is disturbing,” Pityana is reported as saying.
  • The Steinhoff scandal rumbles on, with fresh details that point to its former bosses taking advantage of confidential information to make money through share trading. BusinessLive columnist Ann Crotty reports on how a friend of former CEO Markus Jooste appears to have been given the heads-up that the company share was about to plummet. Court papers reportedly show that the former Steinhoff CEO advised his associate to sell the global retailer’s stock six days before the company revealed what later turned out to be a multibillion-rand fraud that sent its shares crashing she says. Steinhoff has a hole of about R124bn in its books, it is estimated.
  • Steinhoff International Holdings NV is considering an initial public offering of Pepkor Europe, its fastest-growing unit, Bloomberg reports. The scandal-hit South African retailer seeks funds for the next phase of its recovery plan, people familiar with the matter said. Steinhoff shares surged as much as 7.4% in Frankfurt, where the company has its main listing.The retailer is considering selling shares of the Pepkor Europe unit in London, though a Warsaw listing is also a possibility, the people said. No final decisions have been made. Steinhoff is looking at ways to raise cash as it works through the final stages of its debt restructuring, which is scheduled to be completed by an Aug. 9 deadline agreed by creditors. The company’s shares have lost more than 90% of their value since December 2017, when Steinhoff initiated a probe into accounting irregularities.