Johannesburg - Were HSBC to acquire South African banking firm
Nedbank Group [JSE:NED], it would likely involve a "reasonably lengthy process" if past such deals were anything to go by, Nedbank CEO
Mike Brown said on Monday.
Interviewed on CBNC Africa television, Brown said quite a few regulatory approvals would have to be attained because both groups were represented in several countries.
While price and regulation are seen as potential stumbling blocks to a sale of Nedbank to HSBC, a leading bank analyst said there are significant benefits of scale for Nedbank if a deal transpires, and regulation is not likely to be a huge hurdle to overcome.
"I think they chatted first (with regulator) and I don't see it as a stumbling block," said Cadiz Asset Management banking analyst and portfolio manager Rob Nagel.
Nagel feels the key issue is around price and
Old Mutual [JSE:OML] holds all the cards in that regard as it has 53% ownership. "It is tied to Old Mutual and is set by them, and so no one knows the price."
But he feels a premium for control in this case could be 25%. Rand Merchant Bank on Monday morning speculated it could be 30%.
Nagel says HSBC is looking for "up to" 70% ownership, yet it may be happy with 50.1% at the end of the day.
He sees all of this as a positive move for Nedbank because it needs a foreign partner, as all local banks should look to have foreign partners to compete better in the globalised banking landscape.
Government and regulators in SA take current circumstances into account to protect the industry. It is often viewed as a high hurdle and some compromises need to be reached with regulators, like having South Africans on the board.
In 2005, Barclays did not make an offer for Absa Group until it had met then finance minister
Trevor Manuel to discuss specific regulations government would impose, such as meeting black economic empowerment goals, retaining a local listing and ensuring the CEO and a majority of executive management would be South Africans.
The authority of the registrar of banks also needed to be recognised.
These rules were not insurmountable at the time and the deal has worked for Barclays, as Absa has consistently contributed R8bn to R9bn in pretax profit to Barclays (10% to 12% of its total).
The proposed transaction with HSBC, if and when it proceeds, would be implemented by way of a partial offer to all Nedbank Group shareholders to acquire up to 70% of their shares. The making of a binding offer by HSBC is subject to a number of pre-conditions.
In order to satisfy these pre-conditions, a period of exclusivity has been granted by Old Mutual to HSBC.
"There can be no certainty that the proposal which Old Mutual has received from HSBC will lead to a transaction," the group said.
HSBC is seen as a good fit when it comes to negotiations on price as well, as it is one of the most liquid global banks in the world and holds 80% assets to deposits.
Brown said Nedbank Group has built a solid platform from which it can grow and service its clients. "Our vision is to build Africa's most admired bank by strategically focusing on areas with strong economic profit potential in South Africa and in Africa.
"We believe a strong international banking partner could accelerate the delivery of our vision.
"A global bank as a controlling shareholder could provide access to financial, technical and operational support to improve our competitive position in South Africa and the greater African continent for the benefit of all its stakeholders, including employees, customers and investors," he said.