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New bank BEE cost is R20bn

Johannesburg - Deals which led to the transfer of large stakes in the four major retail banks to black investors would cost R20 billion to restructure, Cas Coovadia, the chief executive of the Banking Association of SA (Basa), said yesterday.

4 April 2008 · Staff Writer

From www.busrep.co.za

January 23, 2008

By Mzwandile Jacks

The deals which were struck in 2004 and 2005 have been found wanting by organised labour, which wants the direct ownership component raised from 10 percent to 15 percent.

The national treasury and Basa are gunning for a division of 15 percent indirect black economic empowerment (BEE) ownership and 10 percent direct ownership, while labour and community movements call for 15 percent direct and 10 percent indirect ownership.

Which bank will BEE your choice? Click here and find out

Coovadia's comments came as the national treasury and Basa were involved in a fierce battle with labour and broad-based community movements over direct BEE ownership as stipulated in the financial sector charter.

If labour's demand for a 15 percent direct ownership is granted, then it would
mean that the BEE transactions would have to be restructured.

The financial institutions have struck empowerment deals worth R23.7 billion and the value of these institutions rose significantly in March 2004 and May 2005,
performing strongly up until September 11 last year.

Absa's market cap has surged 185 percent, FirstRand's increased 89 percent,
Standard Bank and Liberty leapt 187 percent and Mutual & Federal lifted 50
percent.

Old Mutual's market capitalisations shot up 108 percent while African Bank zoomed 98 percent and Nedbank's market cap has been on a tear, increasing 112 percent.

Coovadia said it was not clear where this money would come from because the banks would clearly not fund the restructuring.

"According to the Banks Act, when direct ownership of a financial institution reaches 15 percent, banks cannot finance it. This would mean empowerment entities would have to have lots of funds available to enter into BEE deals. Remember the aforementioned deals were financed by the banks when the direct ownership was pegged at 10 percent," Coovadia said.

Basa believes restructuring of the deals would confuse local and international
shareholders of the financial institutions, leading to permanent loss of confidence in the financial sector empowerment framework.

According to Basa, the loss of this confidence would not be limited to the financial services sector but can be expected to impact more on the broader South African economy.

Investors would be concerned that if a charter as constructive as the financial
services one was deemed to require major revision, then why the same would not be true with important sectors like mining.

The resulting uncertainty, according to Basa, would increase the cost of capital and would lead to a severe reduction of foreign investment.

Jan Mahlangu, Cosatu's retirement funds co-ordinator, said it was the tendency of South Africa's capital to worry about the costs when they had to effect change in their companies. "We just want to increase black ownership in the financial services sector and nothing else. This is about the transformation of the most strategic sector in our economy," Mahlangu said.

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