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Johannesburg - Despite its CEO being seconded to Barclays Middle Eastern operations and a sharp dip in earnings, there are still opportunities for the Absa Capital business.
Absa's investment bank suffered a 87% slump in headline earnings due to losses in single stock futures (SSFs). The group was forced to take delivery of stakes in the JSE-listed Pinnacle Point Group, Blue Financial Services, Sekunjalo and IT firm ConvergeNet after clients at the broker Cortex Securities defaulted on SSF positions.
The bank has elected to write down R1bn worth of exposure to these positions, with its stake in property developer Pinnacle Point Group written down from R931m to zero.
But CEO John Vitalo told Fin24.com these positions could be revalued should equity markets recover and Pinnacle Point successfully recapitalise.
"We have suffered a painful loss, but lessons have been learnt," said Vitalo, emphasising that Absa Capital had spent a lot of time working on risk management.
Absa Capital will now only underwrite SSF contracts in highly liquid shares and has undertaken far stricter vetting of its clients in terms of position concentration and creditworthiness.
The highly-rated Vitalo has been credited with turning Absa Capital into a powerhouse which contributed R2.2bn in earnings to the group for the 2008 financial year.
His success did not go unnoticed and in May he agreed to take on the CEO position of Barclays' Middle Eastern investment banking division. Barclays is the majority shareholder in Absa.
Vitalo doesn't think his secondment will affect Absa Capital.
"I don't think Absa Capital will lose momentum.
"I have poured my heart into this Absa Capital business since 2006 and I would not have accepted the Barclays opportunity if I thought it would negatively impact Absa Capital."
Asked whether he saw better opportunities for investment banking in South Africa versus the Middle East, Vitalo pointed out that the two markets were at very different stages of their development and couldn't be compared.
He said that while the South African investment banking market was largely "liability driven" and there was a focus on infrastructure projects, there were far greater pools of money in the Middle East and this, coupled with the high growth in the region, presented a different set of opportunities.
- Fin24.com