Banking stocks knocked in '08

Johannesburg - 2008 will be remembered as a grim year for investors as the market performance of small and large banking operations alike have left a sour taste in the mouth for some.

In the midst of global market turmoil, investors have seen many international big-name financial players - such as Lehman Brothers and Bear Stearns - evaporate over the last year and it has left them nervous about the prospects for local firms.

From a local share price perspective, Absa was the only South African bank to hold its ground this year and investors will be breathing a sigh of relief. The bank's share price was down a mere 1.76% since January 2 2008 to date.

Considering Absa's large exposure to the SA consumer market through its mortgage lending operations and ties to UK-headquartered Barclays Bank (major shareholder), the performance is quite impressive in comparison to other SA banks.

For the rest of the "big four" banks it was pretty grim reading:

• Standard Bank: -16.51%;
• FirstRand Group: -24%; and
• Nedbank Group: -29.74%.

In terms of the other major players in the bank sector, Rand Merchant Bank Holdings was down 20.53% while Investec Limited dropped 34.76% and Investec Plc 33.20%.

Unsecured lender African Bank lost 23%, while niche market player Capitec dropped 26%.

Smaller banks suffer

It was an unforgiving year for the smaller banking operations.

Sasfin, a banking firm targeting entrepreneurial commercial, corporate and private clients, led the way down losing a whopping 57%.

Earlier in the year, analysts had tipped Sasfin as being an underrated stock that was not only cheap but also offered a generous dividend return to investors.

Jannie Mouton's PSG Group - which offers a variety of banking, stockbroking and investment management activities - followed close behind, losing nearly 51% of its value. Much of the fall in PSG's share price has been attributed to strong declines in the values of its listed and unlisted investments, including Capitec and agricultural investment firm Zeder Investments.

In recent years, banks have generated super-profits for shareholders and as a result, they have been able to return healthy dividends to shareholders, with yields in excess of 6%. However, this might be changing.

Companies such as Investec and African Bank have already trimmed their dividends in recent months and shareholders will be watching to see how the other big banks approach capital conservation when they report in late February and early March.

While carnage has been the name of the game for PSG and Capitec, it should be noted that directors in these businesses have been piling into their own stock in recent months.

Perhaps they are giving us a gentle nudge to look at a few of their shares in granny's Christmas stocking?

Interesting times ahead in 2009.

- Fin24.com