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Night of the long knives

24 February 2004 Angelo Coppola

Nedcor releases their results, with a SENS announcement that must be similar in length to a prominent government ministers' speeches. Angelo Coppola reports from Johannesburg.

Financial overview

* Headline earnings: R55m - down from R2 476m

* Headline earnings, excluding foreign currency translation loss: R1.5bn

* ROE, excluding foreign currency translation loss: 8,5%

* Net interest margin: 2,96%

* Cost-to-income ratio, excluding foreign currency translation loss: 70,1%

* NAV per share: 4 240 cents, down from 6 300 - 33%

* Restatement of 2002 financial results in line with commitment to increase transparency

* Headline loss of R1.6bn

Outgoing chairman of the bank - Chris Liebenberg - opened the presentation with some prophetic words - "Can I go?"

He announced that the size of the Nedcor board was reduced, ala advocate John Myberg's recommendations - down to 17 people, with only two executive directors.

David Muller and Paddy Hall are not up for re-election, while Stewart Morris and Isaac Botha take early retirement and Liebenberg steps down in May at the AGM.

Presenting a brave face, following the Old Mutual plc results presentation, where another R5bn rights offer was announced, Nedcor CEO Tom Boardman explained where all the capital had gone, adding that the balance sheet had been cleaned up and finally that there would be improved transparency and quality of earnings.

This was day 132 for Boardman, since his appointment was announced. "It has been challenging and exciting," he says. "Some announcements are still due, including the tough people decisions that were necessary.

"This has probably been the hardest period I have had to face in my business career," he told FA News exclusively.

Rights offer

The second rights issue in as many months was undertaken, according to Boardman, to restore the bank's tier one capital. The R2bn raised in December was to give the bank the 'headroom' needed to clean up the balance sheet, according to Boardman, with the R5bn offer now.

It also seems that Old Mutual may want to up its interest in the local bank, while Boardman says there is no confusion or overlapping of fiduciary responsibility, and his is a director in only Nedcor.

On the question of the balance sheet clean-up, he said that it was to avoid any of the problems that had occurred over the last two to three years. It seems there has been a corporate cleansing, almost an amnesty, with, as Boardman puts it, commitment from all levels of the business.

Perhaps more interestingly, Boardman announced that the results had been restated, on a voluntary basis, and not due to any pressure from the GAAP Monitoring Committee (GMP).

Expenses

Also announcing a more aggressive cost cutting exercise, Boardman said that the current efficiency ratio of 70.1% was unacceptable, with operating expenses up at R9 950m.

"Expenses have increased disproportionally to the income," he says. "The currency strength has also had a major impact on the bottom line.

"This is a bank and not an investment house," he says. They want to focus on the core South African business. "There are no plans for an expansion into other areas, other than the various SADEC opportunities."

They would be disposing of all non-core local and international assets, which Boardman says would be complete in FY 2004. Chiswell and Associates is going; while the other businesses have yet to be finalised.

 

Governance will look at the entire business - from boardroom to basement, as he put it. Committee board changes were announced which would negate the danger of a single person having too much power. A sideways shot at the previous CEO, perhaps?

"ACC133 was a challenge," says the temporary FD, on loan from Old Mutual plc, Bob Head. "We are now close to the 10% capital adequacy ratio required."

"Nedcor felt fat, when I arrived, and having enjoyed and experienced the beaurocracy, there is more fat to go."

Capital

So, where did the capital go?

"There was R23bn at the beginning of the year - 11% CAR, and then the rand moved against the bank. The amount of capital offshore also led to an even greater hit.

"ACC 133 also reduced the capital even further. While the Peoples Bank put is now seen as a liability," says Head.

They are looking to generate annuity-based income, as apposed to the one-off positive hits to the bottom line of the past.

Tax

The question of the tax due was addressed, and Head indicated that there were some 500 companies in the group, and the obvious problem of open tax year-ends.

The bank has also taken a more prudent view of tax due, and also the potential tax changes that may have an effect on the business.

Mutual & Federal

He touched on the M&F deal, saying that the bancassurance opportunities will be developed with Bruce Campbell and his team.

Head count

Boardman would not be drawn on any further cuts, only saying that any discussion concerning job losses would be negotiated with the unions concerned.

Finishing on a positive note, Boardman, says the bank has all the right aspects in place, highlighting the fact that he was he oldest person on the executive committee, by four years, from Derek Muller.

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