Standard Bank released its interim results today reporting performance that has been described as lacklustre. The group reported a 1% increase in headline earnings per share, and an 8% increase in net asset value per share. These figures were counteracted by an 11% increase in dividends. The group’s share price is down on the day, which has no doubt been affected by the bank declaring a write-down of $80m with regards to its Chinese aluminium deal which has been marred by strong speculation of fraud. Alec Hogg spoke with Standard Bank’s Joint Chief Executive, Sim Tshabalala to discuss the results, the Chinese deal and the bank’s overall performance. – LF
ALEC HOGG: Standard Bank reported a marginal uptick in first half earnings, up by one percent headline earnings per share, but the dividend has been bumped up by no less than 11 percent in this period. Company Chief Executive Sim Tshabalala joins us now from the Standard Bank Head Office. Are you in the new Rosebank Building, Sim?
SIM TSHABALALA: No, I’m in the Global Leadership Centre in Morningside.
ALEC HOGG: I see, because we have your new Rosebank Building in the background there and I can just tell you that it’s made a spectacular difference to the traffic issues in Rosebank, but that’s not a concern of yours. Right now, the concern is what’s going on in China, aluminium, not counting, double counting by the Chinese, and hey presto – nearly R1bn that you’ve had to write off on these results.
SIM TSHABALALA: Alec, as we pointed out in our results this morning, we have a nett exposure there of $167m. We have taken a provision of $80m and the reason we’ve done that is just to be prudent, because there is still a great deal of work to be done in the investigation, in the legal processes and insurance arrangements that we are pursuing. There’s a lot of work to be done.
ALEC HOGG: Sim, you’re almost giving shareholders hope that you’ll get money back. We had Bevan Jones in our studio a moment ago who said that this is the tip of the iceberg of what’s going on in China. There’s plenty of double counting going on in a similar type of situation. Will you take a write-off of $80m, as you say? Is the board looking at this and saying ‘we might actually be able to claw some of it back’ or are you looking at what the reality is on the ground?
SIM TSHABALALA: Alec, we have people on the ground in China, both in Shanghai and in Beijing. We also have people, who regularly visit and are spending time at the relevant ports and warehouses, and so we do know what’s going on and we’re plugged in. Secondly, we have a relationship with the ICBC, which is, as you know, a very good working relationship. Thirdly, yes, this is a terrible situation to be in – to take provision of $80m is no small matter, but it’s being done to be prudent. As I’ve said to you, we believe that we have strong and good grounds to pursue a legal, as well as an insurance claim, but we cannot be certain about the outcome until the investigation has been completed. Therefore, we took the provision. The board has been apprised of the matter. They’ve applied their minds and we’ve had to satisfy ourselves in the process. For example, is this an isolated incident or is it rife? I would offer to you that all the evidence and the facts at our disposal suggests that it’s an isolated incident.
ALEC HOGG: I hope the flow is not being hit by some kind of a good news filter. Let’s go onto the implications of this. We have also seen the Regulators in London balking a little on issuing new licenses, particularly to Chinese banks. What’s happened with your sale of the London operation to ICBC?
SIM TSHABALALA: Alec, there’s a lengthy process that has to be completed, which includes getting regulatory approval from a score of Regulators: Regulators here in South Africa, in the U.K., and in China, etcetera. We’re slowly working through the list of conditions precedent necessary for the closure of this transaction. We’re still hopeful that it will close by the end of this year. As I say, we are going through the regulatory processes and the regulatory approvals, and we are going through a process of preparing the asset for the completion of the sale. In effect, we have to create a self-standing bank, which will be handed over and that is a costly and energy sapping exercise, and we’re going through it.
ALEC HOGG: There’s no doubt that the shareholders will be breathing a big sigh of relief when that’s finally done, given the losses that the global side of your business have really dented an otherwise pretty good performance. Sim, just one question, though. Headline earnings per share up one percent. Dividend up 11 percent. Can you explain the thinking there?
SIM TSHABALALA: We wanted to keep our dividend cover at around two, especially when calculated and looked at from the perspective of the continuing operations. Our view is that the continuing operations are up in the low teens and therefore, the dividends should be consistent with that growth.
ALEC HOGG: And we do know in South Africa, the big story here is Abil. Can you unpack some exposure that Standard Bank might have to that, either to the bonds or through your stand-up operation – the equities?
SIM TSHABALALA: Alec, we have no direct lending exposure – as Standard Bank – but we have indirect exposures, clearly, as a group of companies. We are part of the consortium that the Governor announced on Sunday, underwriting the rights issue in the good bank, and we’re working with the National Treasury, the Central Bank, our competitors, and the financial system to make sure that this is resolved in an orderly manner.
ALEC HOGG: There’s a lot of talk about unsecured lending at the moment and people are looking at micro lenders, for good reason. If you unpack your results, the biggest growth in your exposure was to credit cards by 13 percent in this period, and that’s unsecured lending. Is there a little hint of concern there that the credit card debt is also getting into a dangerous area?
SIM TSHABALALA: Alec, we have evaluative programs that are based on statistical methods, which help us think through the risks that we take on in these big books. Our view is that our exposure to the credit card business remains within risk appetite. The risk we are assuming are commensurate with the returns that we’re generating and that we’re still happy with that balance, even in the credit card business. If you take a closer look at your unsecured lending book, you will see that the lower end of the market – what we call the inclusive banking book – has reduced. It’s now just shy of R2bn in size. The middle market of unsecured lending, a product that we call RCP, is still generating good returns for us and in fact, the impairments in that book have actually declined.
ALEC HOGG: That was the joint CEO of Standard Bank, Sim Tshabalala. I hope this tape doesn’t come back to haunt him in the future.
