In a move that mimics that of Barclays PLC a week ago, Old Mutual PLC has announced that it will be reducing its controlling stake in Nedbank Group.
Barclays PLC announced last week that it would be selling its majority stake in Barclays Africa Group and Absa over the next two to three years. (For more click here)
Today Old Mutual PLC revealed the outcome of its strategic review. In it, Old Mutual “outlined its new strategy of a managed separation of the underlying businesses in the Old Mutual Group to unlock value. For Old Mutual, this should improve efficiency of funding, reduce Old Mutual PLC head office costs, remove complexity including increasing regulatory constraints and unlock and create value for Old Mutual shareholders,” explained Nedbank Group in a statement.
Old Mutual PLC will be broken up into four business units, which will be managed independently. These are: Old Mutual Emerging Markets (“OMEM”), Old Mutual Wealth, Old Mutual Asset Management and Nedbank.
What does this mean for Nedbank?
It is not yet clear how Old Mutual will reduce its shareholding in Nedbank Group. According to Nedbank Group, at present it is thought that Old Mutual will primarily distribute its Nedbank shares to the shareholders of Old Mutual in a manner and time to better manage the separation. It is not thought that Old Mutual intends to sell any of its Nedbank Group shareholding to a new strategic investor.
“It is currently intended that apart from the strategic minority shareholding in Nedbank Group to be held by Old Mutual, the remainder of the Nedbank Group shareholder base will be widely held by the time the managed separation process has been completed,” added Nedbank Group.
Mike Brown, Nedbank Group chief executive said: “The Nedbank Board and I have been proactively engaging Bruce [Hemphill, Old Mutual chief executive] and the Old Mutual Board about their new strategy and its impact on Nedbank and we have expressed our support for this outcome and look forward to working together to help implement the Old Mutual managed separation in a collaborative way that benefits all stakeholders.”
It is believed that this process will be completed by the end of 2018. In a SENS announcement released by Old Mutual, it said: “The boards of directors and management teams of Old Mutual and Nedbank Group are working closely together to determine the most effective method and appropriate timing to effect the Old Mutual Managed Separation, in a way that safeguards the stability and integrity of both Nedbank Group and the South African financial services sector, including determining the level of the strategic minority shareholding that Old Mutual will hold in Nedbank Group on an ongoing basis post the Old Mutual Managed Separation.”
Brown stressed: “Old Mutual’s decision to separate its four businesses will have no impact on the strategy, day to day management or operations of Nedbank. Nedbank Group is already governed, managed and operated as an independent business which is separately listed on the Johannesburg Stock Exchange. This will not change for shareholders, clients and staff.”
Reactions to the announcement
In a joint statement by National Treasury, the Financial Services Board and the South African Reserve (SARS) Bank (SARB) outlined the decision by Old Mutual, adding: “Old Mutual has been in regular contact with the National Treasury, the Reserve Bank and the Financial Services Board (FSB) over the course of the strategic review. The consultation and dialogue has been constructive, and there is a commitment by the boards of directors and management teams of Old Mutual, Nedbank and OMEM to execute the managed separation in a way that safeguards the stability and integrity of both the South African businesses and the South African financial services sector more broadly.
“OMEM and Nedbank are each significant businesses in their own right with strong balance sheets. The enhanced ability of these businesses to access their natural shareholder base is welcomed; as is the increased alignment of the key governance structures and lead supervision with the location of the respective businesses. This will have positive benefits for the South African economy and capital markets.
“The managed separation process will involve ongoing regulatory engagement. The FSB and the Reserve Bank will work with Old Mutual and Nedbank to ensure that any potential execution risks are mitigated,” highlighted Treasury, the FSB and SARB.
The SA banking industry is strong
Despite the announcements by both Barclays PLC and Old Mutual PLC that they are selling their respective stakes in Absa and Nedbank, PricewaterhouseCoopers (PwC) reported that South Africa’s major banking groups “produced a credible set of results for the year ended 31 December 2015.”
These banks include: Absa (Barclays Africa Group), Nedbank, FirstRand (First National Bank and WesBank) and Standard Bank.
Johannes Grosskopf, banking and capital markets leader for PwC Africa, noted: “Overall, the major banks reported combined growth in headline earnings of 12.5% against the comparable period to December 2014 to reach R33.8bn. This is a credit to the strength of the major banks’ franchises and the resilience and diversity within their income streams to withstand economic headwinds while delivering growth at the group level.”
Grosskopf added: “In spite of difficult economic conditions, South Africa’s major banks continue to produce laudable financial results. Looking ahead, the outlook remains cautiously optimistic given the level of uncertainty and challenges facing the domestic and global economy.”
Regardless of the financial results for South African banks in 2015, Barclays PLC and Old Mutual PLC are still to sell their stakes in Absa and Nedbank. However, both banks have come out emphasising that this will have no impact on their day-to-day operations, clients or staff.
“Nedbank will continue to offer our retail and wholesale clients’ world class service, products and advice in South Africa and in the Rest of Africa. It’s business as usual at Nedbank,” stated Brown.
He added: “This clarification of Old Mutual’s strategy is a positive step for Nedbank and all the businesses within the Old Mutual Group.
“The Nedbank Board and I would like to express our sincere appreciation to the Old Mutual Group for the longstanding relationship and on-going support of Nedbank and I look forward to continuing to work with both Bruce Hemphill and Ralph Mupita.”