When my good friend David Shapiro decided to join Sasfin Bank, I was a little sceptical. Mr Shaps had been through a difficult time at the ill fated Corpcapital. I thought the former Max Pollak CEO would flourish rowing his own canoe, and tried to encourage him to do so. But David, as usual, knew best. Despite some rough waters during the financial crisis, Sasfin has proved a safe harbour not just for David but also for its shareholders. Long a favourite share for those seeking a strong dividend stream, the group delivered a sparking 22% improvement in its payout for the year to end June. From what chairman Roland Sassoon said in our interview, expect more of the same in the next 12 months. With a capital adequacy ratio that’s over double what the regulator requires, this is a strong little bank that is tightly niched and positioned to keep delivering decent profit improvements. It also has the incomparable David Shapiro in its ranks, a fact which surely assisted the division he helps run, Wealth Management, generate a 46% earnings improvement to R46m in the year under review. Occasionally, the nice guys do come out on top. – AH
To watch my full interview with Roland Sassoon on CNBC Africa Power Lunch, click here.
ALEC HOGG: Sasfin has reported a 22% rise in full year headline earnings and a 23% in its dividend. Joining us to unpack the numbers is Chief Executive, Roland Sassoon. Roland, we’ve spoken many times over the years. Every time you look at the Sasfin numbers the market likes it because you’re a good dividend payer. But intriguing to see; your dividend yield is below 5% nowadays, so the rating has improved over the years.
ROLAND SASSOON: Yes, but we’re still paying 40% of profits but ja, it’s a high yield.
ALEC HOGG: Market liked the numbers today – up 4%. You didn’t manage expectations too badly.
ROLAND SASSOON: We’re happy with the results and what we’re particularly happy about is the sustainability of the results. We’re really getting it on all fronts so every unit in the business is now in a profit situation.
ALEC HOGG: We want to talk about David Shapiro’s operation in a while because he’s probably your most famous person; almost as big as your Sasfin brand itself. But the part that jumped out at me is capital adequacy. You’ve been around a long time. You remember the A2 Bank crisis. Is this something still in your DNA that you want to make sure that you’ve got lots of money for a rainy day?
ROLAND SASSOON: We’ve got very high capital adequacy. Our growth is strong so we’ll grow into that capital adequacy. We feel that we’ve got enough capital to see us through for a few years before we have to do anything about it. We now get comfortable strong growth.
ALEC HOGG: You said in the numbers you’ve got R1.6bn in surplus liquidity. What does that translate into that – what do they call it – Basel III (Tier one adequacy)?
ROLAND SASSOON: We’ve mentioned what our capital adequacy is, which is about 26% so there’s good scope for growth.
ALEC HOGG: 26%? That compares with ABSA at about 11.2%; 12.2% for Standard…
ROLAND SASSOON: As a small bank one has to have a bigger capital adequacy.
ALEC HOGG: That’s what I was getting to because of the A2 crisis which was pretty scary, you might have worried about being in businesses or staying in business. When there’s a run on the bank it’s the little guys who get hurt.
ROLAND SASSOON: Ja. We prefer to play it safe and have a strong capital adequacy. The people who put money with us prefer that as well, so our rating is good and we want to keep it that way. We don’t want to let the capital adequacy drop too much. But as I say, we believe we’ve got enough scope in capital to see us through for a couple of years.
ALEC HOGG: As a small bank, your return on equity of 14% – again that’s an indication of having this ‘lots of cash in the bank’ if you like.
ROLAND SASSOON: It is a factor. If you go back a couple of years we were well over 20%, and well over 25% before Lehman and all the drama that went with that. We’ve had to adapt to a new world. The new world has required – apart from the capital adequacy issue – a lot of regulatory stuff, so we were really taken. It had a big impact on us – the whole Lehman crisis. Because first of all, we had to draw in or reduce our lendings because we didn’t know what was going to happen to the credit crunch.
What happens then, is the good clients tend to leave you when you cut them back, and you’re left with the bad clients. With a recession hitting the next year, as well as a lot of the bad guys getting into trouble, it took us a couple of years to come to terms with this. And of course, all the regulatory stuff that’s been thrown at us has been massive right across the board in the different businesses. All this has taken its toll on the return on equity. But we’re now in a situation where every unit is in a profit situation and we’re getting growth right across the board. We believe its sustainable growth. So we’re confident that our ROE will improve quite a lot.
ALEC HOGG: The cost to income ratio that we look at in banks; that’s very high relative to what we’re seeing on the continent. I was talking to a CEO of a Kenyan bank recently and theirs is in the 40’s. You’re now below your target of 65% but it’s nice to see that you’re still high.
ROLAND SASSOON: I think we’re unique in South Africa and probably just about in the world, in that we’re a small bank with enormous amounts of products – over 20 products. You’re not getting critical mass in any one product, but as I said, each product is now in a profit situation. We’re adding critical mass and so each area should improve and that will drive the ROE up. We went for this model, because we don’t have concentration risks. We know certain small banks who have all their eggs in one particular basket, whether it be unsecured lending or whatever. And then of course, when that basket goes pear-shaped, the whole organisation does too. So we decided that it would be better to have a diversified operation. Also, from a client point of view, we can offer him a diversified service.
ALEC HOGG: And your dividend yield; well, a lot of people buy it for that 4.6. You are not on a demanding P-ratio either – 8.7 times. David Shapiro, his contribution to your firm: I see that the business that he looks after – Wealth Management – is up 46% in this year. Did he get a good increase?
ROLAND SASSOON: Very good.
ALEC HOGG: Is he tied in through equity?
ROLAND SASSOON: Yes, he would be on our normal schemes and he’s, as you say, an invaluable member of the team. My son heads up that division but David has really helped him enormously. He’s the doyenne. He’s the mentor and he’s just great. He’s also added a lot to our brand so we’re delighted with David.
ALEC HOGG: Indeed. And I see that you’ve swopped a banker – Norman Axten – for a… What would you call Roy Anderson; an insurance man, a construction guy, a stock exchange fellow? But he certainly isn’t a banker.
ROLAND SASSOON: Well, he has been on the board of Standard Bank. He was the Chairman of Sanlam so he’s certainly got huge experience. And you know, only half or just over half of our business, is banking. The other half is financial.
ALEC HOGG: So Roy’s your new Chairman.
ROLAND SASSOON: He’s our new Chairman from the AGM which will take place in December.
ALEC HOGG: Just to have a look at the year ahead; you are the kind of company that people would like to put in their portfolios to sweeten the dividend yield. Is there anything that you can give us confidence on, that it will be business as usual in the year ahead?
ROLAND SASSOON: Well, we’re very optimistic about the year ahead, so we believe that what we’ve achieved is sustainable. We should be able to continue in this vein.
