SA’s top banks analyst on Hamas allegations, Sanlam’s Indian “Tencent” and Assupol

Four times rated the world’s top investment analyst of financial companies, Kokkie Kooyman stands head and shoulders above his local peers, so he is our obvious go-to guy for context on accusations that three local banks have badly misbehaved. In this fascinating interview, Denker Capital’s co-founder provides context on the Hamas funding allegations – and explores why Sanlam’s investment in India is looking uncannily similar to Naspers’ game-changing early bet on Tencent. He spoke to Alec Hogg of BizNews.

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Relevant timestamps from the interview

  • 00:00 – Introduction
  • 01:58 – Iran, Hamas and our banks
  • 03:51 – The share prices of those banks
  • 06:40 – What are the implications if SA banks are facilitating money to Hamas?
  • 10:13 – First Rand bank
  • 13:15 – How to avoid the those big problems?
  • 15:52 -You can get too big as a business
  • 17:16 – Sanlam’s India operations
  • 19:09 – Naspers and Tencent
  • 21:14 – Sanlam’s multi-billion rand deal
  • 23:09 – Paul Hanratty
  • 23:43 – Conclusion

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Edited transcript of the interview


Alec Hogg: But I’m often asked why I go back to talk to people like David Shapiro, who we chatted with last week, and now Kokkie Kooyman. The reason is that they are world-class. Kokkie has been named the fund manager of the year four times by a UK publication, a feat unmatched by other South African fund managers.

But that puts Kokkie in a league of his own in the financial sector. So, Kokkie, let’s start with the controversial stuff first, delving into banks and the opportunities from an investor’s perspective. In the past week, there’s been controversy around South African banks—specifically, Absa, Nedbank, and Standard Bank, being alleged or accused by the chief rabbi of facilitating payments or financial transactions for Hamas, a terrorist organisation. How seriously do you take this? I’ve spoken with the CEOs of all three, and they vehemently deny the allegations. But from your perspective, how do you assess these from a risk basis?

Kokkie Kooyman: Yes, Alec, I had a similar response from the banks. They assure me that they would be insane to fund a terrorist organisation, but it’s challenging to monitor every transaction, especially with increasing sizes. Banks screen transactions and investigate suspicious ones, but the possibility of unknowingly being involved can’t be ruled out entirely. The allegations from the chief rabbi lack concrete proof so far, and I haven’t taken them seriously at this stage.

Alec Hogg: Clearly, the investment markets haven’t taken it seriously either. We haven’t seen the share prices of those banks falling significantly.

Kokkie Kooyman: True, Alec. The market has other concerns affecting South African financials, such as political noise, the potential passing of the NHI bill, and issues in railways and harbours. Global market dynamics, particularly interest rates and the US dollar, also play a significant role. Market focus is currently on predicting interest rate movements, which impact emerging markets like South Africa. The US Fed’s recent statement about no rate cut in March had a notable impact on the markets.

Alec Hogg: Lots of complexities and lots of moving parts, but let’s finish with the South African banks and the Hamas allegations. If the Jerusalem Post is right, and if these banks have been facilitating transactions to Hamas, what are the implications of that? We know South Africa’s already grey-listed, and we know that South Africa seems to be pretty close to one side in the whole Middle East fight.

Kokkie Kooyman: We were invested in two banks in similar situations, one a Swedish bank and the other ING. Before the high-fives in Austria, both were involved in money laundering cases. In the Swedish bank’s case, it was Russian clients moving money through Latvia and Estonia in the late ’90s and early 2000s. Investigations took years, and they were found guilty and fined. If the allegations against South African banks are true, the worst-case scenario could involve sanctions from the US authorities, similar to what we’ve seen in the past.

Alec Hogg: Alan Pullinger, the outgoing CEO of FirstRand, emphasised the sector’s opposition to such activities when addressing potential issues with US authorities. The concern is that the US could impose sanctions on South African banks, impacting their ability to trade with US banks.

Kokkie Kooyman: Indeed, the worst-case scenario is that US banks may not be allowed to trade with SA banks. It’s a serious concern for the banking sector.

Alec Hogg: Interesting that FirstRand was not named among the banks allegedly facilitating Hamas transactions. Looking at your portfolio, where FirstRand is a significant holding, have they continued to outperform despite challenges facing South African banks?

Kokkie Kooyman: South African banks, on average, are down about 5% year to date, with FirstRand being the hardest hit at 9%. Last year, FirstRand performed well, but this year, it’s facing an investigation into malpractices related to motor leasing in the UK. This could result in a substantial fine, impacting their earnings.

So, nobody knows the size of the possible fine or the size of the transactions. The market assumes the worst initially. FirstRand’s significant drop is mainly due to the potential massive fine, which may be addressed in the next results call.

Alec Hogg: Kokkie, aren’t these companies just too big now? It seems like issues keep emerging, like EPSA’s problem in Ghana and FirstRand’s trouble in its UK subsidiary. When you’re so big, how do you keep tabs on everything, control everything, and avoid these big problems?

Kokkie Kooyman: Excellent points. It’s crucial to have good people on the ground when operating globally. Sending the best team is essential to compete effectively. The Ghana problem, however, had limited preventive measures. Diversification is key when going offshore, as seen with Standard Bank and Sanlam. Regulatory oversight is increasing, making compliance and legal teams vital to manage risks.

Alec Hogg: It just seems that you can get too big, and even a small part of your business going wrong has a massive impact. Investing in these behemoths requires accepting the rough with the smooth.

Kokkie Kooyman: Yes, indeed. Being too big poses challenges, but successful offshore expansion, as seen with Standard Bank and Sanlam, creates significant wealth for shareholders. Going offshore involves risks that companies must navigate.

Alec Hogg: I got to throw something at you there. Warren Buffett went to India and ran away, citing corruption. Sanlam is operating in India, now the biggest part of the business. We’ve seen scary stories like the Hindenburg investigation. How safe is this, Shiram, this part of Sanlam?

Kokkie Kooyman: It’s an interesting thing. We were invested in Shiram before someone found them in 2003. They have an ethical management team, strong on culture. The CEO, RJ, is ethical, and my interactions over the years affirm their commitment to doing things the right way. India is high risk, but the regulators are vigilant. Long-term relationships and on-site presence mitigate risks, but it’s always a challenge.

Alec Hogg: Could Sanlam’s investment in Shiram be its equivalent of Naspers’ 10 cent? Sanlam’s largest holding in our net bank fund is Sanlam, and it could be undervalued. Shiram’s business is strong, growing at 15% per annum in a country with a nominal growth of 12%.

Kokkie Kooyman: The value of Shiram inside Sanlam is not recognised by the market. It’s a substantial business with diverse operations. The comparison with Naspers and Tencent is apt, but societal and governmental differences between India and China make them distinct.

Alec Hogg: Just to close off, Sanlam made a multi-billion-rand deal with the acquisition of Assupol. Do you know this company?

Kokkie Kooyman: Yes, I do. It was the old South African police force insurance operation. They built it into a good business for the lower end of the market, and the acquisition seems like a positive move for Sanlam, especially after losing the Capitec business.

Alec Hogg: Part of Sanam’s strategy includes the acquisition of Bright Rock, and the CEO, Paul Hanratty, has performed well after taking a small salary and a lot of shares.

Kokkie Kooyman: Yes, it was a top performer among financial shares, recovering from the previous year’s challenges. Sanlam remains good value and one of the best-positioned businesses in South Africa.

[Note: The transcription has been edited for clarity, grammar, and conciseness.]

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