Reserve Bank honey pot attracting foreign banker – The Wall Street Journal

It's an idea that has been floating around in the ANC-alliance for years – that the South African Reserve Bank should be nationalised. As the government ran out of money due to the large scale of corruption in the Zuma years; the Reserve Bank was seen as the honey pot by politicians intent on spending their way out of trouble. In December 2017, the ANC adopted a resolution at its national conference, where Cyril Ramaphosa was elected as leader, to nationalise the Reserve Bank. The Reserve Bank is unique in as it is one of only eight central banks in the world with private shareholders. But ownership is not the issue; the criticism of the Reserve Bank by those who want to nationalise it, centres around its role; it has to keep inflation under control but those opposed to its private ownership want the bank to stimulate economic growth, to support development, to print more money. Standing steadfastly between the Reserve Bank and those who favour its nationalisation, is Finance Minister Tito Mboweni and the Governor of the Reserve Bank, Lesetja Kganyago who know how tinkering with the mandate of the central bank would be viewed by South Africa's skittish foreign investors. Gabriele Steinhauser writes in the Wall Street Journal that a former Goldman Sachs analyst, Michael Dürr, is leading a group of shareholders hoping to cash in on plans to nationalise the Reserve Bank and is believed to have helped drive the idea of nationalisation in the ANC. And Dürr brags:"I play them like a piano sometimes." (Now where have we heard that before, Bell Pottinger?) – Linda van Tilburg.Ex-banker bids to cash in on South African takeover of Central Bank.By Gabriele Steinhauser ___STEADY_PAYWALL___.(The Wall Street Journal) – PRETORIA, South Africa – Activist shareholders eyeing a multibillion-dollar payout have zeroed in on an unusual target: South Africa's central bank..Led by an eccentric former investment banker who has built deep ties with the country's leftist ruling party, the shareholders are betting that the government's plan to nationalise the publicly-traded central bank will hand them a piece of its assets that far outstrips the face value of their holdings. At play, according to the bank's governor, Lesetja Kganyago, could be as much as R150bn ($10.3bn).The South African Reserve Bank is one of a handful of central banks around the world – including Switzerland, Belgium, Japan and Turkey – that has private shareholders. Trading at around R10 and carrying an annual dividend of a maximum of R0.10, the bank's 2 million shares don't look like a great investment. Nor do the bank's private shareholders wield much power, despite owning all its stock: They vote for some of the bank's non-executive directors and approve its auditors, but have no influence on monetary policy or the selection of its governor and deputies.Read also: Unpacking the implications of nationalising the Reserve Bank – Jannie RossouwStill, Michael Dürr, whose career includes a stint at Goldman Sachs in London, believes foreign shareholders are set to capitalise on a 2017 decision by the ruling African National Congress to nationalise the central bank, by appealing to international tribunals for compensation. He sees precedent in a 2002 case that handed minority shareholders a portion of a public bank's net worth.In the 2002 case, a Dutch arbitration tribunal ruled that private shareholders in the Switzerland-based Bank for International Settlements, a consortium of central banks, were entitled to net asset value minus a 30% discount. The ruling, prompted by the institution's decision to eliminate private shareholders, handed shareholders an extra 9,052.90 Swiss francs ($9,109) a share on top of the 16,000 francs a share they had previously been offered."That we will get [the South African Reserve Bank's] net asset value or a part of it is obvious," said Mr. Dürr, who, in combination with family members, at one point controlled 100,000, or 5%, of the bank's shares. He now owns the legal limit of 10,000 shares, following a 2010 change to the bank's statutes that banned extra ownership through associates..South African Reserve Bank Governor Lesetja Kganyago, pictured during a Sept. 4 television interview in Cape Town, South Africa. PHOTO: WALDO SWIEGERS/BLOOMBERG NEWSOther attempts by shareholders to get their hands on a central bank's assets have been less successful than in the 2002 case. In 2013, minority shareholders in the National Bank of Belgium abandoned an 11-year quest to get compensation for the transfer of the bank's foreign-exchange reserves to the government.The South African Reserve Bank's legal team says it doesn't believe that South African law would give its shareholders access to the bank's net assets, which amounted to R20.05bn for the year ended March 31, or its foreign and gold reserves, which stood at $54.4bn at the end of September. But the bank's General Counsel Johann De Jager says decisions by international tribunals are harder to predict. "There is a risk because you can't control what happens," he said.From his home in a quaint lakeside town in the German Bavarian Alps, Mr. Dürr, who once attended the central bank's general meeting barefoot and in lederhosen, has assembled a motley crew of allies in support of nationalisation. They include white Afrikaners, who trade unsubstantiated theories about the bank's gold and freshly printed cash having gone missing, and senior ANC officials, who see nationalisation as a way to empower South Africa's poor, black majority.Some of them communicate – sometimes daily – on a WhatsApp group called "SARB nationalisation" run by Mr. Dürr.Officials at the bank believe Mr. Dürr's activism helped drive the idea of nationalisation. In 2009, he met with then-President Jacob Zuma, just as the concept was gathering force within the ANC's left wing.Two years ago, the party formally decided that the government should take full ownership of the central bank, calling the existence of private shareholders "a historic anomaly."Read also: Wits academic trio tackle ANC on Reserve Bank "policy"In recent months, senior ANC officials, including the party's Secretary-General Ace Magashule, have pushed to introduce legislation to expropriate private shareholders, combined with calls to expand the central bank's mandate beyond price stability to focus more on jobs and economic growth. President Cyril Ramaphosa has said he agrees the bank should be government-owned, but doesn't support nationalisation now, given the costs to taxpayers and the economy. The standoff has fuelled a vicious factional battle within the ruling party that has hit South Africa's currency and government bonds.There might be another way. The South African Reserve Bank Act of 1989 caps compensation for shares at their average market price for the year ending three months before a liquidation order is introduced in parliament. But this would require dismantling and rebuilding the bank's legal structure overnight, a risky move given the volatility of South Africa's currency and credit rating.""The only legal provision there is, is for liquidation," said Jannie Rossouw, a former company secretary at the bank, in which he remains a shareholder, who now heads the business school at the University of Witwatersrand in Johannesburg. "That's a fair approach."Mr. Dürr says he first bought shares in the bank in 2006. He soon realised that with shares trading at less than two rand, it was cheap to build a position in the central bank.He encouraged friends to also buy into the bank. Those friends today control some 7% of its share capital, according to Mr. Dürr. The bank's shareholder register shows that investors from Germany, including several from Mr. Dürr's hometown, own 91,850 shares, about a 4.6% stake – far more than any nationality other than South Africans.Mr. Dürr says his main motive for pushing the central bank's nationalisation isn't making a profit, but helping the government gain back control over its financial and monetary system from private banks. To get there, he has strengthened his ties with the ruling party."I play them like a piano sometimes," he said in a recent interview. "It's just a matter of what you feed whom."– Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com

Reserve Bank honey pot attracting foreign banker – The Wall Street Journal

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