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Johannesburg - Financial services group FirstRand's underlying franchises remained sound, said CEO Paul Harris on Tuesday following the release of the company's results for the year to end-June 2009.
Earnings from banking subsidiary First National Bank (FNB) slumped 19% to R3.7bn while vehicle financing unit Wesbank slipped 43% to R324m.
Financial services provider Momentum saw its earnings drop 18% to R1.6bn.
The contribution of short-term insurance operation Outsurance rose 14% to R307m, while that from the FNB African businesses was up 3% to R514m.
Investment banking subsidiary Rand Merchant Bank's contribution to total earnings slumped 49% from R3bn in 2008 to R1.5bn.
Total earnings for the group came in at R7.1bn, down 31% from the R10.3bn reported in the previous financial year. Net interest income dropped 1% to a shade under R18bn while non-interest income fell 53% to R10.6bn.
FirstRand elected to cut its dividend from 38.25c per share to 22c.
Performance vs write downs
Harris said investors needed to distinguish between the operating performance and investment write downs when assessing the financial achievement of the group.
"Rightly or wrongly we may have allocated too much capital to our offshore investment activities, and like everybody else, we got cleaned up," said Harris. "But we certainly didn't bet the house."
He was referring to a R782m loss the equity trading division suffered at RMB, as well as a poor performance from the RMB Fixed Income unit and losses on the exit of certain international operations.
Bad debts
Impairments across FirstRand rose 58% from around R5bn to R8bn.
Similar to comments made by the heads of Standard Bank and Absa, Harris agreed that bad debts would continue to rise, describing the local economic recovery as slow and painful.
"The South African economy is still facing difficulties," he said. "The consumer will remain under pressure in the medium term, despite the recent easing of interest rates, as the excesses created in the previous upward cycle unwind."
Refocus
The group said it had begun to reassess its strategic direction. It wanted to position itself as a strong player in Africa and develop an "Africa-Asia corridor" through its relationship with China Construction Bank.
Banking shares dropped across the board in morning trade on Tuesday, with FirstRand off 1.6% (25c) to 1 505c.
- Fin24.com