Durban - First-quarter results from SA's largest and most global life insurance and wealth management group, Old Mutual plc, indicate the insurance, asset management and banking industries are entering a difficult period - at home and abroad.
Many of the numbers are pretty ugly. We all know markets are tough and consumer spending is under growing pressure, but meagre growth of only 2% in life assurance sales is not good.
And the 12% decline in unit trust and mutual fund sales is terrible. There are some specific reasons for this, but it seems clear Old Mutual - and probably much of the rest of the industry - is battling.
One positive note in the results is that, overall, Old Mutual is still attracting positive net client cash inflows of £2.1bn. But in South Africa there was a net client outflow of R3.6bn.
Commentary by CE Jim Sutcliffe is revealing by what it doesn't say.
No doubt the spin doctors were at work on his statement - Sutcliffe is a straight talker - but it's a little like reading body language in print.
Mixed signals
For instance, the emphasis is on diversity. The SENS statement is even headed "Strength in diversity".
Says Sutcliffe: "Old Mutual's diversified business model and international portfolio enabled us to achieve a resilient performance in the first quarter against a background of challenging market conditions."
Sure, diversity, especially across the world, did help. But apart from euphemisms like "resilient" and "challenging", the above statement also changes tack a bit from Old Mutual's earlier contention that it was getting back to core wealth management and a stronger focus.
That was the reason given last year for wanting to sell its controlling stake in short-term insurer Mutual & Federal. So what is it? Diversity, core focus, or both?
Sutcliffe does not mention the disappointing life product sales in his statement. But he does say that, looking forward, "retirement savings remain a growth industry for those with good investment performance and we are well placed to outpace competitors".
Does this mean we'll see a stronger push for retirement annuity and endowment sales?
These products are still recovering from the mauling of two years ago. But the life market, apart from the emerging market where Old Mutual seems to be doing reasonably well, is pretty saturated.
One suspects the only reason subsidiary bank Nedbank has not been declared "non-core" is because it provides a flow of referrals for life policies that new home buyers need to take out.
Below par investment performance
Investment performance in South Africa at Old Mutual Investment Group SA (Omigsa) is below par. Unit trust sales were up strongly by 19% to £324m, helping offset the overall 12% decline. But funds under management in South Africa dropped by 3% to R433bn.
Old Mutual says apart from market conditions this was due to restructuring in some funds, heavy exposure to traditional mandates in two boutiques (whatever that means), and weak short-term performance.
Sutcliffe always said it would take a few years for the boutique structure to settle in. But the problem seems to be that Omigsa is not really being treated as a collection of boutique asset managers. If a few underperform, so be it. But it's still being looked at as a single large manager. Not surprisingly, clients seem confused.
Nedbank's results weren't bad given the difficult climate for banks, but it did take a larger than expected hit in retail banking, where the bad debt ratio is expected to exceed the target.
This will affect all banks, but perhaps Nedbank more than others. It was traditionally light on the retail banking side and perhaps rushed in too enthusiastically, eager to attract new clients and not too careful on credit risk. The fall out is coming through now.
Net interest income was up a healthy 21.9% to R3.87bn and advances (annualised) grew by 24.7%. But the 0.7% increase in non-interest revenue (to R2.29bn) is disappointing.
Vanessa Hofmeyr, manager of the Investec Growth Fund, sold Nedbank during the first quarter, not because she was negative on the bank but felt it was a good time to take profits after its successful restructuring.
Hofmeyr did say, though, that she expected Nedbank's growth to be more muted for the next two years. Seems she's right - but it may be more muted than she expected.
Results from other life companies could be worse, so Old Mutual should perhaps not be judged too harshly.
But the market didn't seem to like the results either - a few hours after the SENS announcement the share price had lost more than 2.5%.
- Fin24.com