A redefinition of the investment term 'safe' may be on the way with oil prices threatening to march northwards! -------------------------------------------------------------- business.iafrica.com
BUSINESS WITH BRUCE End of the road
Thu, 18 Aug 2005 Bank shares this week sounded the retreat, in line with the rest of the market, but faced the additional pressure of a series of new challenges highlighted by Standard Bank's interim results released this week.
Since the appointment of Jacko Maree as CEO, Standard Bank has gone from strength to strength and Wednesday's results provided further evidence of a solid management team delivering solid results.
The pressure cooker
Call me contradictory though, but did I notice the mood at the results presentation this week was less ebullient than normal? Did I get the sense that the pressure is building on the management team, which for the past four years has consistently delivered exceptional results?
While they are celebrating their success, there are clouds on the horizon for the banking sector in general.
In the retail space, bank charges are increasingly coming under scrutiny as government seeks ways of making financial services more affordable to the majority of South Africans.
New players
Bad debts are at their lowest levels in recent memory and must at some point begin trending upwards. There is the threat of new entrants into the banking market, under new legislation proposed by government, which could see anyone from cell phone providers and retailers offering basic banking services.
That's precisely why Standard Bank recently joined forces with MTN to create MTN Banking — a brand new cellphone only banking service.
It puts Standard Bank ahead in a new market segment, but also is a defensive measure as it takes out MTN as a competitor in the retail banking space. We've seen similar moves by Absa, which has tied up with JD Group and is rumoured to be working on a banking solution with Shoprite Checkers as well.
Pressure too is mounting in corporate and investment banking. Standard Bank's profits for the first six months of the year grew in that division by 11 percent.
Tougher competition
Internationally competition is getting fierce and locally, the increased Barclays presence highlights the impact of foreign competition on the local banks own doorstep.
Not only does it see tougher competition for business, but it also increases the cost of employing the brightest and best talent the country has to offer.
Cost of compliance
Then there is the ever-increasing cost of compliance. The implementation of Fica and FAIS and the global requirement of being compliant with Basel II adds further cost pressure to organisations.
Standard Bank, according to Jacko Maree employed several hundred new staff over the past year simply to cope with compliance issues.
Pension Funds Adjudicator bares teeth
Standard Bank also owns 30 percent of Liberty Life, which, like the rest of its peer group, is under fire from the Pension Funds Adjudicator over legacy issues around Retirement Annuities.
The potential fallout from the dispute between the adjudicator and the life industry cannot yet be quantified. But speaking to the heads of life companies, there is some concern about the long-term impact on the sector.
Standard Bank has plenty to be proud of. Since batting off Richard Laubscher's Nedcor, which attempted a hostile takeover in 1999, the team has proven itself to be among the sharpest in town.
The group is the country's most widely held share amongst institutional fund managers — but it raises questions about whether or not the company is providing a prime investment opportunity.
If you do buy Standard Bank now, don't expect fireworks, but the recent drop in the share price to around R70 may provide a juicy opportunity to put this one in the bottom drawer.
Dividend payments are strong, the economy is continuing to see strong growth which suggests strong future earnings growth, probably closer to 15 percent than 20 percent per annum in the short term.
But, be cognisant of the fact that the sector generally faces challenges. However the team that runs Standard Bank has shown itself in the past to revel in challenges and rise above them.
