Publications
Partners
Johannesburg - First National Bank parent FirstRand has cautioned on the possibility of a second wave of job losses which might weigh on South African business.
The group, reporting its results for the six months to end-December, was the most downbeat of the Big Four retail banking groups - all of which have now reported - with its outlook for the remainder of 2009.
Speaking to investors and analysts after the release of the company's results, CEO Paul Harris said: "Things could get a lot worse."
Harris pointed out that the South African consumer was under pressure with high interest rates, job losses coming into the system and lower house prices.
He said: "We believe that there could be a second wave of job losses in the coming months."
The FirstRand group saw its earnings decline by 23% for the first six months of the period; it was particularly hard hit by losses in both its home loan and trading operations.
For the six months to end-December, home loan operations reported a loss of R975m in comparison to a profit of R256m in the corresponding period in 2007. The loss was attributed to a R600m increase in funding and liquidity costs and a R780m provision for bad debts.
"We are still dealing with the 2006 and 2007 retail vintages," said Johan Burger, chief financial officer for the group. He was referring to home loans issued just prior to the implementation of the National Credit Act, where banks have been criticised for lending to consumers who would be unable to meet their obligations.
Analysts, however, zeroed in on trading losses sustained by the group both onshore and offshore.
Equity portfolios 'flat'
Locally, the group was hit by the collapse of derivatives trader Dealstream, where the group - acting as the counterparty to the single-stock futures (SSFs) transaction - was required to take up large stakes in listed companies after the company had defaulted.
FirstRand has taken a mark-to-market loss of R116m after exiting these positions, and has set aside a R219m claim against Dealstream.
Market watchers are sceptical of recovering any funds after Dealstream proprietor Russell Leigh fled the country, reportedly to Israel, after defaulting on massive SSF positions which hit a number of listed companies including Vox Telecom, Simmer & Jack and Control Instruments.
After reporting a R767m loss in its equity trading divisions for the six months to end-December 2007, the group followed this up with losses of R410m for the 2008 period.
These losses knocked the stuffing out of an otherwise credible performance from the Rand Merchant Bank private equity operations, which realised an operating profit of R1.5bn.
When quizzed by analysts on the composition and performances of the equity portfolios since the start of the year, Burger said their performance had been "flat".
In response to an analyst's question on the subject, Harris asked analysts not to push the group for too much further information on the composition of these portfolios beyond the guidance they had been provided with. "I don't want us to be in a position where we have to report on the sub-sectors of the portfolios," he said.
Initially, investors reacted negatively to the results when they hit the market, selling the share down more than 6%. A broad-based rally, however, has seen FirstRand recover lost ground and it is trading unchanged at 1 135c.
- Fin24.com
