Abil’s final hours

2014-08-17 15:00

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Reserve Bank had been working for some time on solutions for beleaguered lender

Tom Winterboer, PwC’s Africa financial industry boss, was in a meeting at 8am on Friday last week when he received a call from an official at the SA Reserve Bank’s bank supervision department, whose name he won’t provide.

Two days later, he was named curator of African Bank Investments Limited (Abil).

Three days earlier, Abil released a shock trading update where it asked shareholders for R8.5?billion to improve its equity and capital position after worse-than-expected bad debts.

Shareholders dumped stock, sending the group’s share price from 688c on Tuesday to 31c on the morning of the official’s phone call.

It has subsequently emerged that Coronation Fund Managers, which was the largest shareholder at 22%, was responsible for the bulk of the sell-off, as a joint letter by chief investment officer Karl Leinberger and senior portfolio manager Neville Chester to investors this week stated that the investment house had cut its holdings in the bank to less than 9% when the official called Winterboer.

While Abil’s position came as a huge shock to investors last week, the bank, regulators and advisers appear to have been working on a solution for some time.

“There was a lot of work before that with the regulator,” said Winterboer, referring to PwC’s work for the bank in the four weeks before Reserve Bank governor Gill Marcus called a press conference late on Sunday afternoon.

There, Marcus announced the bank would be split in two with the “good bank” immediately placed under curatorship with R10?billion in capital. The “bad bank” was bought by the Reserve Bank for R7?billion.

David Gard of PwC London had been hard at work on this for a while and will be assisting Winterboer with his duties with Briton Peter Spratt.

Shareholders have bemoaned Abil’s lack of transparency around its loan book.

“As outsiders, we do not yet know why the book performed so much worse than the representations made by management portrayed,” read Coronation’s letter to clients.

Another fund manager, who represented one of the largest shareholders, said: “We were lied to by management. We believed the company would be fine post the first rights issue. Surely your loans collections will show if your borrowers are repaying or not?”

Asked at which point Gard realised Abil’s provision for bad debts was woefully inadequate, Winterboer, who had only been in the job for five days, said that would form part of his work from now on.

The auditors are not saying a word about what went wrong.

Mgcinisihlalo Jordan, the audit partner at Deloitte who has signed off on Abil’s reports since 2010, said he could not comment due to client confidentiality.

Bernard Agulhas of the Independent Regulatory Board for Auditors said no reportable irregularities had been lodged with his body from the Abil auditors.

Said Winterboer: “We’ve met with the auditors in the last day or two.”

The National Credit Regulator (NRC) believes it has done its bit with regard to African Bank.

“The NCR investigated African Bank for reckless lending and the matter was settled with the bank paying a fine of R20?million,” said Lesiba Mashapa, its company secretary.

Now it’s time to move on.

Ellerine Holdings is in business rescue, which Winterboer says he cannot comment on because he is only responsible for African Bank.

African Bank is buying insurer Stangen from Abil, which will diversify the bank’s income streams.

It is crucial that the good bank’s borrowers continue paying, said Winterboer.

Who bailed the bank out

The consortium which has raised R10?billion to save African Bank is made up of Absa, Investec Bank, Nedbank, Standard Bank, Capitec, FirstRand and the Public Investment Corporation (PIC).

One of the consortium members, who spoke on condition of anonymity, said they were asked by the Reserve Bank to underwrite the recapitalisation of the “good new Abil”?–?as Abil has been split into a “good” and “bad” bank.

“The details of the split of the underwriting have yet to be made public,” he said.

“We have become part of the consortium to provide assistance to the [Reserve Bank] to maintain a stable banking sector, not for a long-term shareholding in a competitor. That is not our goal.”

The PIC was one of Abil’s largest shareholders.

Absa’s Money Market Fund, worth a total R51.6?billion by June 30, had the highest exposure to African Bank instruments at R1.8?billion. Ratings agency Fitch Ratings downgraded the fund four notches to A (Zaf) on Wednesday, citing its high exposure, as well as the length of this exposure, to Abil debt.

Also by June 30, various retail funds in Investec Asset Management were exposed to Abil debt to the tune of R443.1?million. Fitch placed one of them on “rating watch negative”, along with another fund, the Investec Money Market Fund, which did not have substantial Abil holdings by June.

But Investec Asset Management’s Kotie Basson said it operated “entirely independently” of Investec Bank.

“We therefore cannot comment on the rationale for doing so,” she said.

Nedbank’s Nedgroup Investments Core Income Fund and Money Market Fund collectively held R875.6?million in Abil instruments by June.

Both were also placed on a negative ratings watch by Fitch, along with Stanlib’s Extra Income Fund, which had a R351.8?million exposure to Abil by June.

But curator Tom Winterboer downplayed most of the consortium’s exposure to Abil instruments.

“It’s not specifically about Investec, it’s not specifically about Nedbank at this stage,” he said.

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