Patrice Rassou: FNB has taken the South African market by storm

It's unlikely that you will find a South African in the country who has access to the radio who doesn't know 'Steve from bleep bank'. Between FNB's overwhelming marketing campaign, its definitive move to customer-centric banking and its branding facelift, one has to wonder what the costs have been, and if the juice has been worth the squeeze. When looking at FirstRand's results released today, it certainly seems like a good news story of note and one where focused strategic implementation has seriously paid off. Patrice Rassou, head of Equities from Sanlam has an in-depth look at FirstRand and its subsidiaries, and where exactly they all are in the landscape of businesses returning results ro shareholders. – LF

ALEC HOGG: First Rand has reported a good set of results for the full-year, to the end of June. Its banking franchises are FNB, RMB and, not so much Wesbank, delivered good performances, particularly FNB and RMB. We'll be getting into those figures now with Patrice Rassou, who is Head of Equities at Sanlam. Patrice I think the overall point that one can draw from these numbers is that First Rand is on its way to putting daylight between itself and Standard Bank. For years, Standard Bank was in front. First Rand was a very, poor second, and then it got close and, of course now way ahead, market-cap at R254bn for First Rand. R220bn for Standard Bank and the gap looks to be opening.

PATRICE RASSOU: Yes, you are 100 percent right. It seems that FNB has taken the South African market by storm. It's a strategy that they really, fine-tuned post the global financial crisis, where they had taken some losses in the U.K. and they decided to refocus on our market and, really launch into very innovative strategies. Which led to the bank winning, 'the Most Innovative Bank Award in the World', and now we are seeing that that's coming through, in terms of customer acquisition and, interestingly enough, it's loan book is still growing, very strongly at 14 percent per annum. The traditional market that it's known for especially RMB is of lesser importance in the group now, and it's really coming forward as the premier retail bank in South Africa and giving a good run to Standard Bank, as you mentioned already and, of course, Absa.

I think capitalising on the fact that Absa Retail has had its problems and has lost customers, which I think FNB have been the main beneficiary, in terms of getting market share, in that segment of the market.

ALEC HOGG: What is interesting is that you'd have to have the whole of Absa and the whole of Nedbank now, to be worth the same as FNB in market-cap terms. I suppose that's telling you the way that the investment community is assessing these different groups.

PATRICE RASSOU: You are 100 percent right. Your assessment is spot on. We have FNB trading on a price, to book value of over three-times. The market is paying three-times the value of the equity and that's a reflection, on the type of returns that the market believes that FNB and First Rand can create, over the longer-term. If you compare that to other banking groups, they are all trading below two-times book, with Investec at the bottom at one-point-five to one-point-six times book and that's saying that the market doesn't see as high returns, from these other banks, going forward. Than they can see from First Rand and the reality is that if you look at the latest results that they posted, at 24 percent return on equity that's as you said, rightly. That's almost a ten percent gap with its peer group in South Africa, which is pretty amazing, giving the fact that it's a really, competitive market.

The products are fairly similar and yet FNB is proving that you can make a lot of money, through a very innovative approach to banking and really appealing to the customer base. In a market, which many thought was ex-growth; it showed that it really could shake-up very established market share, while not taking a lot of risk. That's the other very important thing because in banking often, one gets very worried when we see high-growth strategies because we tend to pay the price, when the economy slows in terms of bad debts. That is definitely not the case with FNB, which has got the highest capital buffer of all the big-four banks and is probably the best provided as well, in terms of provisioning.

ALEC HOGG: It's a really good story, excepting Wesbank. What might have gone wrong there Patrice?

PATRICE RASSOU: Yes, Wesbank is a story of the vehicle financing market. That part of Wesbank was under pressure, as you would expect. As we've seen the results of the likes of Imperial but, overall Wesbank still managed to grow its profit and what is less known is Wesbank is now very big into the personal loan's market through Direct Access. These are these annoying letters you get through the post, offering you R100.000 loans, which are usually chucked in the bin, but it is doing very well from that. It's also doing very well from the commercial and corporate side of the business and growing in the U.K., through a business called Moto Novo, which is growing at 20 percent, in Pound terms. By in large; in Wesbank, you are getting a mini FNB, which is very interesting.

Where they are competing, head-on, which is the real philosophy of the First Rand Group, whereby these different businesses, not only compete with the outside world but they compete against each other. I would say positive, low single-digit growth in Wesbank, given the type of pressures we're seeing in vehicle lending and vehicle numbers. I don't think it's a bad number.

ALEC HOGG: It's interesting, the point that you make. That it's a mini FNB in some ways. Could you see it in the same way as we've seen with other parts of the group, eventually being 'spin-off' and 'spun-off' and doing its own thing? Maybe becoming less reliant on vehicle finance, which seems a tough market to be in, and more reliant elsewhere, in more profitable areas.

PATRICE RASSOU: It's a very, interesting point you make and I think you should set up your own corporate finance shop, Alec because I don't think it's one, which the market has really thought about. It would be interesting to try to calibrate what type of market cap Wesbank on its own would be able to gain. It's got its own brand, its own system, it's fairly standard loan, in terms of running of that division. It would be possible for Wesbank to be a stand-alone business and it would give the other banks a good run for its money and, maybe sort of grow in areas that wouldn't normally be associated with a vehicle financier, as such. I think it is something that is on the cards, as the book of Wesbank gets a lot more diversified, away from your traditional vehicle finance market.

ALEC HOGG: Some interesting insights there from Patrice Rassou. He is Head of Equities at Sanlam and, well congratulations all around, to the team at First Rand. They are killing the opposition, whether you want to look at it in terms of the value of the company, in terms of price to book, what the investment community thinks. The only concern, I guess is can they keep it going? Can they sustain this amazing run that they've had? Well, from the set of financial results, we've seen today, it's the year-to-end June; the answer is a very, clear, and resounding 'yes'.