How African Bank’s collapse affects your?pocket

2014-08-17 15:00

AS A DEPOSITOR

If you have savings with African Bank, the good news is that your money is safe. The SA Reserve Bank has stood behind the deposits for retail clients and the bank is being recapitalised. The bank’s curator, Tom Winterboer, confirmed that “African Bank is open for business and that our retail customers’ money is safe”.

AS A BORROWER

If you have a personal loan with African Bank, you will still need to continue with your repayments. The company is still open for business and clients are still expected to repay their loans.

AS AN INVESTOR

If you bought shares in the holding company, African Bank Investments Limited (Abil), or the black empowerment share scheme, you will not be able to sell your shares at this stage.

Abil shares were suspended from trading this week.

This means no one can buy or sell Abil shares until further notice?–?the share price is frozen at 31c a share at present.

Investors in Abil’s black empowerment schemes, Eyomhlaba and Hlumisa, are sitting deep in the red as the debt owed on the shares is far higher than the shares are worth.

Craig Gradidge of Gradidge-Mahura Investments says Abil would have to be trading at R2.80 for investors in the empowerment schemes to break even.

At this stage, Abil has not provided any information on how this debt will be restructured.

Gradidge says one option is to extend the terms on the deal and wait for the curatorship process to run its course.

As an investor in funds with exposure to Abil Investors in unit trusts and money market funds who had exposure to Abil will see their returns affected.

Stanlib chief executive Seelan Gobalsamy confirmed that several Stanlib unit trust funds had bought shares in Abil.

“The impact on individual investors will vary depending on the exposure of their chosen funds,” he says. The funds that were the hardest hit were the Stanlib Financials Fund and the Stanlib Value Equity Fund.

“We advise our clients to remain focused on their investment goals and remain committed to these goals.

“Market fluctuations are inevitable and while this event has created uncertainty, we do not believe our clients should act in haste,” says Gobalsamy.

The chief investment officer at Coronation, Karl Leinberger, says although losses have been incurred by Coronation funds, these have been limited.

“We made sure only those funds with appropriate risk budgets invested and that exposure was contained to appropriate levels. This has been clearly demonstrated by the resilient performance of all our funds this month.”

In a letter to investors, Leinberger said this had been a humbling experience. “We do not like to make mistakes. Unfortunately, mistakes are part of life for an investment manager.

“The challenge is to make sure they aren’t material and that we learn from them.”

Although retail deposits were safeguarded, institutional investors, including money market funds, did not receive the same protection.

As a result, money market funds that had deposited cash with Abil will reduce the interest paid to clients although the impact should be minimal.

Leon Campher, the chief executive of the Association for Savings and Investment SA, says money market funds will offset writedowns on African Bank debt securities against income for this month.

The Financial Services Board (FSB) has confirmed that money market funds overseeing about R270?billion have 1.3% exposure to African Bank debt.

According to the FSB, one day’s interest might be used to recover losses.

If that is not enough, funds may reduce the number of units rather than impair their value.

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