David Shapiro has earned his title as South Africa’s favourite market commentator through his forthright contributions. And on Rational Radio this week he didn’t disappoint when asked to unpack the public ruckus between financial services giant Old Mutual and its former CEO Peter Moyo. Even though Moyo won a court hearing and returned to his desk this week, Shapiro comes out strongly on the company’s side – arguing in some detail during this interview that the former CEO is simply fighting for a bigger payout. – Alec Hogg
David Shapiro as promised is with us. David, it’s quite interesting to notice that a lot of people seem to take their lunch hour at about 12 thirty because suddenly we get an uptick in the number of people who are tuning into Rational Radio. Although it might actually be a David Shapiro factor.
___STEADY_PAYWALL___
No, I think its lunch hour. Lunch hour extends from 12.30 to 1 or to 2 probably. We’re in Melrose Arch so I monitor the crowds. I always sneak out early to beat them.
So they got their earplugs in, sitting there having their Woolworths – which they went to buy earlier and they can hear what David Shapiro thinks about Old Mutual and Peter Moyo.
What a mess.
It is a mess and it’s irreparable. He can’t go in there as though nothing has happened. First of all the board’s against him.
Have you been following this? Give us an understanding of what is going on.
It’s a very interesting story. I like to prepare these things, because I to need to go back in my brain to make it coherent. There’s a very interesting factor in how this all came about. Old Mutual had preference shares in Peter Moyo’s business and one of the factors is that you must first pay out preference shareholders before you pay a dividend to yourself. In other words, preference share is equity capital and it ranks just above equity. If you’re going to pay a dividend you must first pay the dividend on the preferred share before you can pay on the ordinaries. I think he breached this maybe once or twice in a number of ways. In other words, when there was money in his empowerment vehicle he paid out dividends before paying out Old Mutual and I think that’s the source of the transgressions. In other words that there was a bit of a conflict of interest. He was more interested in his own business than in paying out the shareholders – the people who supported him. Of course this obviously led to a lot of tension down the line, but where you have this kind of management standoff with the board of directors, something has to give. I think he’s going to come back and negotiate a bigger package because I think he’s lost the trust of a lot of people – of the masses of Old Mutual employees. These accusations are difficult to defend so it’s going to be very hard for him and somewhere down the line I think he’s going to find pressure on himself. The best thing for him to do is come to an arrangement to pay him out which is I think is what he wants. It’s not doing Old Mutual any good. For him to fight is going to affect the legacy of that business which is 150 years old plus.
But this guy got 35 million bucks last year. What did you say about Gary Porritt once? Oh by the way. You know Gary is in Sun City. He’s in jail. They finally arrested him. I heard this from my pals down in KZN. He’s behind bars at last but I remember you saying – when we were looking at the Tigon accounts once, you said this guy’s a magician because he’s making big profits but there’s no cash to back it up. Was Peter that good? Would they do that to him?
No. This is Old Mutual, so you’re talking about a major business in South Africa, one of the oldest. What disturbs me is there’s a bigger story behind this. You can see from the way he acted that there was more interest in his own investment vehicle – even though it’s an empowered vehicle, rather than focusing on the business of Old Mutual. So thats where the conflict is and it’s always an important issue. You know you’ve got to ask your management, where’s their love? Where is their focus? On their own wealth or on leaving a legacy. In this case it’s obvious that it was on his own wealth, his own enrichment.
But surely he’s blown it now Dave because as Warren Buffett reminded us continuously – you can steal from me, you can swear at me, but the minute you touch my reputation I’m gonna be back on you like a pile of bricks. And his reputation after all this?
It’s gone now. It’s gone. It’s finished and that’s why he can’t go back to Old Mutual. He can’t go back. I’ve got respect for Trevor Manuel. I don’t think he’s a man who harbours any bitterness. He was a good servant of South Africa, always loyal and one could say that for Maria Ramos as well. She got a nice job at ABSA and I think in the 90s she was a very important part of Treasury. They’ve always had South Africa at their heart. And I think when he took over Old Mutual – I’m not going to challenge his loyalties or what he stood for or his integrity.
He was the guy who drove the stick into Mutuals eye and all the life insurance co’s after people were getting very poor payouts. He was finance minister at the time and he ensured that they had to change the system so investors were better, and more fairly treated.
He’s part of a group of people, regardless of where we are today, there were very strong people in South Africa in Treasury, one can even include Gill Marcus, Pravin Gordhan. So I stand behind Trevor Manuel and I stand behind what he claims to have found. He wants to get Mutual back on its feet and this is just going to thwart any kind of effort. I think shareholders will find it. We’re at a 52-week low, so people are gonna feel this pressure and I think the right thing for Peter Moyo to do is to say “this is irreparable, we’re not going to retrieve the issue, let me go”. They’ll pay him out which is I think what he’s trying to do. That’s what it’s about. It’s about the money.
How many people work at Old Mutual?
I don’t know, it’s the whole of Cape Town. Tens of thousands. If you take the number of offices around the country, in every major city there’s a Mutual branch which has a lot of financial planners or people involved in the investment industry. So there must be thousands of people that work for Mutual. It’s a massive business. You’re putting all these peoples earning power at risk.
You’re also giving them a heck of a time at the family braai or the family lunch saying “you work for that guy? Wow.” Anyway Dave just to close off with, on personal finance live yesterday, we had a question about Capco. I’m sure you remember Capco. That was part of Donnie Gordon’s Liberty International. They’re splitting it into Covent Garden and Earls Court. The Covent Garden operations alone are worth nearly double the current share price and I see the shares are down 5 percent today.
They valued Covent Garden at £2.6bn, which is about double the price that it’s at. Remember Liberty holdings split into Capco and Intu. Capco was Earls Court and Covent Gardens, Intu was all the retail outlets. Intu today has fallen by 25%. Why I’m mentioning it, because it’s dragging down Capco as well. All the property businesses in the UK are starting to feel the pressure of Brexit and with no solution in mind, those companies are under a lot of pressure. Capco’s down another 4 or 5% today, Intu 25% on some really poor numbers, Hammerson also very poor numbers and continues to fall. We keep trying to call the bottom. One believes that there’s got to be value in Capco at these kinds of levels once things stabilise, but it looks like it’s more of a rough ride ahead before we get that stability in the market.
But if you’re a long term investor? If they offered you Covent Garden at half price?
You gain to make millions of Pounds, Dollars, Rands whatever you want. If you’ve got the patience to ride this one out, there’s got to be value. London will never lose its appeal. You can still find tourists wanting to go to Buckingham Palace, Oxford Circus and the various other attractions that are close to Capco’s Covent Garden. It’s a huge area and a very popular retail area. So you’ll make money but be patient, you’ve got to be seriously patient.
David Shapiro as always bringing us up to date on the markets.
