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Industry insiders are not short of adjectives to describe Mark Barnes. “Brilliant”, “a maverick” and “difficult” all come easily to mind when describing the once highly regarded investment banker at Standard Corporate and Merchant Bank (SCMB) and former head of private equity giant Brait.
Barnes however has his own adjective. “I’m a PRAF – previously rich and famous,” he tells Finweek in an interview.
There are few executives in South Africa who capture the imagination in quite the same way. Barnes is outspoken, critical, battle-scarred and 10 years ago had an enviable track record. His more recent ventures through JSE listed Purple Capital have been less than impressive and yet there is an underlying sense that he is one deal away from re-capturing his previous magic.
When Finweek sought out Barnes for an interview it was with the primary goal of trying to work out whether he still had that “it” factor. Could he still swing for the fences and would investors be rewarded if they backed him through his JSE listed investment company Purple Capital?
The short answer is yes.
How we reached that conclusion is a longer story.
Much like Discovery CEO Adrian Gore, Barnes comes across as one of those leaders who can convince you to buy into his vision on the strength of their personality and conviction that what they are doing will ultimately produce results. When you wrap up an interview with either of them there is the underlying sense that they can do anything they set their minds to.
However that is where the similarities end. Where Gore is clean-cut and straight-laced, Barnes isn’t standing on ceremony for anyone.
“I took up rose gardening to try and help me with the women,” he jokes as he walks Finweek through his house in Forest Town, Johannesburg.
Women feature prominently on the walls of the Barnes residence with the house decorated with a number of provocative nudes that would make the uninitiated blush. Gore may be described as a risk-taker of sorts but it is hard to picture him having an image of a woman pleasuring herself in his entrance hall.
A walk into his study reveals a wall dedicated to his six children as well as a poster advertising a play entitled “A pineapple in my panties”.
“My eldest daughter Carly wrote that play,” he proudly explains before bringing out a photo of him preparing to sky-dive with two of his girls.
There is no shortage of colour and appetite for risk-taking in this family.
Just when the word “rogue” springs to mind, Barnes reveals another side to his personality.
In between learning Chopin on the piano he is also a collector of sorts. He proudly displays a Vusi Khumalo piece of art, a helicopter put together with a single piece of wire and a leatherbound thesis from 1939 detailing the impact of motor vehicle parking on the existing road infrastructure.
He snapped up the Khumalo piece early in the artist’s career for next to nothing and now estimates it to be worth hundreds of thousands. An eye for a good deal perhaps?
“I’m a collector of things that reflect human endeavour and innovation,” he says.
There is an old saying that to understand a man you need look no further than at the car he drives and in Barnes’ case this is perhaps the first visible sign where an outsider can start to understand how his life and career have evolved.
“I used to have five cars, but kept running out of parking space so now I am just down to a Toyota Hilux,” he says adding: “It’s amazing how differently people treat you on the roads in a Toyota. The cops were always looking for an excuse to pull over that prick in the Jag.”
Trivial perhaps but the transformation from Jaguar to Hilux sums up much of Barnes’ professional career.
Adopted at birth in the town of Belfast, Barnes secured qualifications from the University of Cape Town and Harvard as he rose through the ranks at SCMB to ultimately become deputy managing director at the same time that current Standard Bank executives Jacko Maree and Ben Kruger were climbing the corporate ladder.
He was selected as a member of the Standard Bank Group’s Executive Committee until he resigned in November 1996 to take up the position of CEO of Capital Alliance Holdings Limited. Capital Alliance was ultimately merged with promising young private equity start-up Brait and Barnes once again took on the CEO role.
However this was where things started to fall apart and after being unceremoniously booted out of Brait, he went off to head up his own private investment company Calajero. This was followed up with
the acquisition of Purple Capital, which was listed on the JSE main board in June 2005.
Purple was a curious mix of Barnes’ personal investments such as chemicals company Spanjaard and a variety of financial services businesses such as acsis, Integer, Global Trader (which at the point had operations in Europe and South Africa) and the Bond Exchange of South Africa (Besa).
“In hindsight it wasn’t the best setup,” he said, adding that the group in its more streamlined composition in 2010 was a better offering. Ironically it was one of the gems in the current crown that nearly sank his vision.
In February 2008, as a wave of panic gripped financial services firms, things went pear-shaped, with traders at Global Traders European operations conspiring to sink the derivatives trader in a move that threatened to destabilise the entire Purple ship.
“Things were tough then and at one point I thought I might have to have a very hard discussion with my family about our financial position,” Barnes says.
Was that his lowest moment in his professional career?
“I have to say I think my lowest moment was when I found myself having to go into a meeting and introduce myself as Mark Barnes and then have to try and sell myself on my past CV,” he said.
At the time, Brait wasn’t the behemoth it is today but being ejected from there was a critical point for Barnes and his professional persona. One moment he was part of the “in” crowd in South Africa’s financial services sector and the next he was out.
Does he begrudge the success that Brait big-wigs Antony Ball and Thierry Dalais have enjoyed post his departure?
“Not at all. I love to see other people making a success. The only thing I do regret is that we had such a powerful collection of talented and smart young people and didn’t make a success of it at the time,” he said.
A textbook response perhaps but there has been no shortage of controversial issues in Barnes’ past that do raise his hackles and get a less than diplomatic answer. Most notably the JSE’s take-out of the Bond Exchange of South Africa (Besa) which the Purple team made an 11th hour bid to prevent.
He makes no attempt to hide his disgust at the decision to allow the JSE to take out the Besa.
“The authorities have made a mistake letting the JSE take over the Bond Exchange and I think people are starting to realise it,” he says.
“We’ve created a monster that will end up eating itself. You have to see the irony when people nearly go to jail for fixing the price of bread and yet the authorities eliminate competition on the exchange that makes the price of bread.”
One issue that frustrates him is that too much lip-service has been paid to competition in the financial services sector while allowing traditional old boy networks to thrive and dictate direction.
“Look at the boards of companies and the major decision makers in South Africa – they are still the same names and faces. It’s a hangover from the old days where we didn’t have too many choices but to invest in each other,” he said.
Considering the negative publicity that has surrounded Standard Bank’s retrenchment programme announced at the end of 2010, does he miss working at Standard Bank and being part of the corporate culture?
The response was a simple: “Sometimes but not often.”
He added that he thought his former employer was making the right decision by embarking on the cost-cutting now and he expected their competitors to make similar decisions down the line. “They’re ahead of the game,” he said.
So if Barnes himself doesn’t hold much store in the value of his past achievements as a clue to his future achievements why should anyone else? The answer is three-fold – he embraces technology and has a voracious appetite for learning, he has an eye for opportunities which other heavy-weights respect, and last but not least he has a natural tendency to pick a scrap.
While anybody can get excited about technology and credited with having an “eye for a deal” not all take pleasure in going against the grain and refusing to accept things at face value. His eyes light up when he relates a story about being stopped by a friend who was meeting an investment manager representing one of the major asset managers about signing up for a new product. When the friend couldn’t understand the proposed deal he asked Barnes to explain in lay-man’s terms and Barnes ripped the sales pitch to shreds.
High profile dust-ups with the likes of William Kirsch and the Primedia board as well as around the Besa transaction are a highlight of Barnes’ career.
Charles Savage, the chief executive officer of subsidiary Global Trader notes that he brings a hard edge to his business dealings and he is not afraid to ask the tough questions of those working in his businesses.
“It is critical because he comes at it with a different set of questions but he also bears the responsibilities of the decisions,” says Savage.
Antony Ball from Brait describes Barnes as “an extremely clever guy” and believes his strength lies in the fact that he has seen many different facets of investment banking as both a banker and as a trader.
Barnes might be comfortable with the “previously rich and famous” moniker, but it’s hard to dispute that he is lining himself up for one more swing at the fences.
Mark Barnes:
Time line
1956
Born
1984
Joined Standard Corporate Merchant Bank (SCMB) in corporate finance.
1991 - 1996
Deputy MD of SCMB.
1995 - 2000
Chairman, South African Futures Exchange.
1996 - 2000
CEO of Capital Alliance and Brait.
July 2000
Ousted as Brait CEO.
April 2001
Barnes and Calajero fail to take out education group Advtech at 50c/share.
2002
Barnes, in his role as non-executive director of media group Primedia, ruffles feathers about executive performances.
July 2007
Purple Capital buys into Global Trader.
February 2008
Traders at the European arm of Global Trader conspire to sink the derivatives player’s international business.
July 2009
Barnes takes the unusual step of becoming an active market maker in Purple Capital’s shares.
2009
Barnes leads failed 11th hour bid to prevent JSE taking control of the Bond Exchange of SA.
2010
A year of consolidation for the Barnes stable as Purple reorganises itself.
2011
Remains to be seen...
BARNES’ BUSINESS TIPS
From corporate banker to entrepreneur, Mark Barnes has seen his fair share of businesses. He provides the following tips for those looking to make their mark:
* If you’re going into a meeting, do a bit of research about the potential client. It’s disrespectful not to.
* At the start of each year meet your management and identify a handful of potential future stars and then take those people aside and explain your plans for them. Some will fold under the pressure but those who don’t will up their game knowing they have a future.
* When you’re coming into a business and want to understand how it really works, go and sit with staff – irrespective of their job titles – and ask them to explain what they’re doing. If they can’t explain to you what they’re doing and why, then they probably shouldn’t be doing it in the first place.
* If you survive mistakes, you’ll be much better off for the experience.
* You have to have balls and say what you think or you’ll never know if it’s valuable.
* Don’t take yourself too seriously. When you think you’re too clever for the game it will screw you up.
BARNES ON banking and asset management
AS A FORMER BANKING insider, Mark Barnes has some pretty strong views on where South Africa’s financial services sector is headed – and it’s not a particularly flattering view.
“Let’s be clear on one thing: we avoided the banking crisis at least in part because South African banks weren’t even on the playing field.” He gives credit to SA’s regulators, which steered financial market players away from exotic international practices.
If Barnes is to be believed, asset management with its “asset gathering” mentality is fast becoming outdated, while banks are likely to become little more than clearing houses for transactions. He uses the example of the “no frills” offering of Capitec as an example of where traditional banking is headed. “Clients will disintermediate banks over the coming years,” he predicts, saying the response to the global financial crisis will ultimately speed up that process.
“People who lost the most money in the crisis got the most money back from governments. That money should have gone back to depositors,” he says, drawing an analogy with Zimbabwe as to what happens when governments insist on printing more money. In his view the solution to banking is neither increased capital nor regulations but rather consequence. If you collect bad assets then depositors get their money back and you go bust.
With governments worldwide currently keeping interest rates low to stimulate growth, there’s no incentive to keep money in a bank. “When cash is your enemy you have to put your money somewhere else – and that’s where a lot of economic logic starts faltering,” says Barnes.
MARK BARNES Quick facts
Currently reading?
Life, by Keith Richards, lead guitarist of the Rolling Stones.
It’s been a rocky few years for you personally. What’s surprised you the most?
Despite all the battles and the history, not once has anybody tried to put the boot in and kick me when I was down. To me that says a lot and I’m grateful.
If you had a billion dollars, would you be following the likes of Zuckerberg, Buffett and Gates and giving half of it away?
I understand what they’re trying to do but I’m absolutely bewildered by the idea. When is half of half of half fair?
What would you like to be doing in the next five years, beyond business?
I’d love to lecture at one of the business colleges on things such as financial markets and properly understanding products like derivatives.
Ashton holds shares in Purple Capital.
PURPLE CAPITAL
Where to?
It’s “work hard, play hard”
THERE’S NO QUESTION Purple Capital has seen better days. The heady highs of 230c/share in May 2007 are long forgotten, with its price currently trading at around 25c. And one has to ask whether it offers investors much. The stock has promised a lot but never really fulfilled its aspirations. So why not delist?
“If I could take it out at fair value then I would, but I can’t. And I promised myself I’m not going to be one of those guys who list at a price and then screw minorities by not realising any value and then delisting,” says Mark Barnes.
Essentially, the business has now pinned its hopes on derivatives trading firm Global Trader and sports betting start-up Powerbet, which trades as Voltbet on the retail side. There’s a small treasury and corporate advisory business within the group, as well as a non-operating investment in micro-lender Real People South Africa that may over time yield rewards. But for 2011 the story is likely to be whether or not Global Trader continues to benefit from increased trade volumes and the anticipated explosion in sports betting in South Africa.
With the blowout at its European operations and the collapse of competitor Dealstream, Global Trader still suffers from something of a credibility crisis. Its management is more likely to be found partying up a storm on the side of a racetrack or entertaining clients at Sandton’s more trendy nightclubs than a quiet day out with Johannesburg’s elite at Inanda Polo Club.
Yet it’s that “work hard, play hard” approach that’s seen Global Trader secure more than 3 200 retail clients and seen it continue to turn profits in its 2008 and 2009 financial years despite the global financial crisis.
Keith McLachlan, a small caps analyst at Thebe Securities, says the leaner Purple business is far easier to understand. “I think with Global Trader South Africa and Voltbet the group is heading in the right direction,” McLachlan says. Off the bat, one positive McLachlan notes is it retains the services of a big name auditor in the form of KPMG.
Asked what he’d like to see from the company, he said first prize was a business able to turn a consistent and sustainable profit, excluding one-off journal entries, and, second, to maintain and grow positive cash flow from all its operations. One area that grates McLachlan as an analyst is whether or not Purple really needs its “corporate advisory division” and, if so, it needs to prove it’s a standalone profitable business.
Brent Graham, of sports betting news and information portal Good For The Game, says such betting is gaining in popularity in SA and will receive another boost from the upcoming Cricket and Rugby World Cups, as well as this year’s expanded Super 15 rugby competition.
Graham says: “I think it’s the increased amount of access people have to the Internet that will fuel the real growth in sports betting.” About Voltbet specifically, Graham says while a number of international players had begun making a splash in SA, Voltbet was one of the few local companies that has remained standing. “What I like about Voltbet is that it has a user-friendly website and is very competitive with pricing.”
Apart from growth opportunities in Africa, there are also a handful of lucrative online casino licences coming up for grabs in SA in 2011/2012, which Purple is in the process of bidding for.
But one analyst was less impressed, saying that while Purple’s net asset value per share was 33c – indicating at first glance it was trading at a discount – it was actually only offering a tangible NAV of around 3c, which changes the picture dramatically. That’s partially influenced by a consolidation of operating assets and the decision to amortise a number of those assets this year. But Barnes counters that the strength of the group lies in technology, market share and people rather than assets.
Brait CEO Antony Ball notes Barnes will face a tough challenge competing in the corporate advisory and treasury businesses. “There are certain industries in SA where the big guys win more often than not,” says Ball. A lack of a solid balance sheet makes it tough to operate in markets where you’re competing against big banking groups.
Charles Savage, CEO of Global Trader, concurs with Barnes that Purple and its underlying businesses are deserving of a “survivor’s premium” having come through the past three years. “Up until last year August, people were still watching us closely, but that attitude has changed from ‘if we’re going to survive’ to ‘where is the business going from here’?” says Savage.
So what convinces Barnes that Purple Capital is still a contender? “For the first time in this group there’s a bit of gees among the staff. We have all moved into one office and now 80 people have one purpose. For example, I got into the lift the other day and one of the senior IT guys was there and the first thing he said to me was that he’d noticed the share price had risen by 1c. The fact that he’d taken the time to go and check meant a lot to me,” says Barnes.
He adds: “Another example is that over Christmas one of the sales guys took the effort to SMS Charles (Savage) and thank him for the job and talk about the opportunities the new year was bringing. When everybody has bought into that vision a lot can be achieved.”
The question now is whether a tidier Purple Capital and its underlying businesses can prove they’re worthy of being valued by the market with a “survivor’s premium”.
Voting with their wallets
DESPITE THE SWEAT and effort involved in turning Purple around, management and exco at the company haven’t had salary increases for the past three years. However, Purple’s directors are also finding their interests closely aligned with extracting value for shareholders. In November last year directors Charles Savage and Mike Wilson were each issued 4m share options valued at R920 000. The strike price of those options was 23c, roughly the level at which the share is currently trading. So if they want to make any money on those options, the “floor” level has been set.
Barnes however has his own adjective. “I’m a PRAF – previously rich and famous,” he tells Finweek in an interview.
There are few executives in South Africa who capture the imagination in quite the same way. Barnes is outspoken, critical, battle-scarred and 10 years ago had an enviable track record. His more recent ventures through JSE listed Purple Capital have been less than impressive and yet there is an underlying sense that he is one deal away from re-capturing his previous magic.
When Finweek sought out Barnes for an interview it was with the primary goal of trying to work out whether he still had that “it” factor. Could he still swing for the fences and would investors be rewarded if they backed him through his JSE listed investment company Purple Capital?
The short answer is yes.
How we reached that conclusion is a longer story.
Much like Discovery CEO Adrian Gore, Barnes comes across as one of those leaders who can convince you to buy into his vision on the strength of their personality and conviction that what they are doing will ultimately produce results. When you wrap up an interview with either of them there is the underlying sense that they can do anything they set their minds to.
However that is where the similarities end. Where Gore is clean-cut and straight-laced, Barnes isn’t standing on ceremony for anyone.
“I took up rose gardening to try and help me with the women,” he jokes as he walks Finweek through his house in Forest Town, Johannesburg.
Women feature prominently on the walls of the Barnes residence with the house decorated with a number of provocative nudes that would make the uninitiated blush. Gore may be described as a risk-taker of sorts but it is hard to picture him having an image of a woman pleasuring herself in his entrance hall.
A walk into his study reveals a wall dedicated to his six children as well as a poster advertising a play entitled “A pineapple in my panties”.
“My eldest daughter Carly wrote that play,” he proudly explains before bringing out a photo of him preparing to sky-dive with two of his girls.
There is no shortage of colour and appetite for risk-taking in this family.
Just when the word “rogue” springs to mind, Barnes reveals another side to his personality.
In between learning Chopin on the piano he is also a collector of sorts. He proudly displays a Vusi Khumalo piece of art, a helicopter put together with a single piece of wire and a leatherbound thesis from 1939 detailing the impact of motor vehicle parking on the existing road infrastructure.
He snapped up the Khumalo piece early in the artist’s career for next to nothing and now estimates it to be worth hundreds of thousands. An eye for a good deal perhaps?
“I’m a collector of things that reflect human endeavour and innovation,” he says.
There is an old saying that to understand a man you need look no further than at the car he drives and in Barnes’ case this is perhaps the first visible sign where an outsider can start to understand how his life and career have evolved.
“I used to have five cars, but kept running out of parking space so now I am just down to a Toyota Hilux,” he says adding: “It’s amazing how differently people treat you on the roads in a Toyota. The cops were always looking for an excuse to pull over that prick in the Jag.”
Trivial perhaps but the transformation from Jaguar to Hilux sums up much of Barnes’ professional career.
Adopted at birth in the town of Belfast, Barnes secured qualifications from the University of Cape Town and Harvard as he rose through the ranks at SCMB to ultimately become deputy managing director at the same time that current Standard Bank executives Jacko Maree and Ben Kruger were climbing the corporate ladder.
He was selected as a member of the Standard Bank Group’s Executive Committee until he resigned in November 1996 to take up the position of CEO of Capital Alliance Holdings Limited. Capital Alliance was ultimately merged with promising young private equity start-up Brait and Barnes once again took on the CEO role.
However this was where things started to fall apart and after being unceremoniously booted out of Brait, he went off to head up his own private investment company Calajero. This was followed up with
the acquisition of Purple Capital, which was listed on the JSE main board in June 2005.
Purple was a curious mix of Barnes’ personal investments such as chemicals company Spanjaard and a variety of financial services businesses such as acsis, Integer, Global Trader (which at the point had operations in Europe and South Africa) and the Bond Exchange of South Africa (Besa).
“In hindsight it wasn’t the best setup,” he said, adding that the group in its more streamlined composition in 2010 was a better offering. Ironically it was one of the gems in the current crown that nearly sank his vision.
In February 2008, as a wave of panic gripped financial services firms, things went pear-shaped, with traders at Global Traders European operations conspiring to sink the derivatives trader in a move that threatened to destabilise the entire Purple ship.
“Things were tough then and at one point I thought I might have to have a very hard discussion with my family about our financial position,” Barnes says.
Was that his lowest moment in his professional career?
“I have to say I think my lowest moment was when I found myself having to go into a meeting and introduce myself as Mark Barnes and then have to try and sell myself on my past CV,” he said.
At the time, Brait wasn’t the behemoth it is today but being ejected from there was a critical point for Barnes and his professional persona. One moment he was part of the “in” crowd in South Africa’s financial services sector and the next he was out.
Does he begrudge the success that Brait big-wigs Antony Ball and Thierry Dalais have enjoyed post his departure?
“Not at all. I love to see other people making a success. The only thing I do regret is that we had such a powerful collection of talented and smart young people and didn’t make a success of it at the time,” he said.
A textbook response perhaps but there has been no shortage of controversial issues in Barnes’ past that do raise his hackles and get a less than diplomatic answer. Most notably the JSE’s take-out of the Bond Exchange of South Africa (Besa) which the Purple team made an 11th hour bid to prevent.
He makes no attempt to hide his disgust at the decision to allow the JSE to take out the Besa.
“The authorities have made a mistake letting the JSE take over the Bond Exchange and I think people are starting to realise it,” he says.
“We’ve created a monster that will end up eating itself. You have to see the irony when people nearly go to jail for fixing the price of bread and yet the authorities eliminate competition on the exchange that makes the price of bread.”
One issue that frustrates him is that too much lip-service has been paid to competition in the financial services sector while allowing traditional old boy networks to thrive and dictate direction.
“Look at the boards of companies and the major decision makers in South Africa – they are still the same names and faces. It’s a hangover from the old days where we didn’t have too many choices but to invest in each other,” he said.
Considering the negative publicity that has surrounded Standard Bank’s retrenchment programme announced at the end of 2010, does he miss working at Standard Bank and being part of the corporate culture?
The response was a simple: “Sometimes but not often.”
He added that he thought his former employer was making the right decision by embarking on the cost-cutting now and he expected their competitors to make similar decisions down the line. “They’re ahead of the game,” he said.
So if Barnes himself doesn’t hold much store in the value of his past achievements as a clue to his future achievements why should anyone else? The answer is three-fold – he embraces technology and has a voracious appetite for learning, he has an eye for opportunities which other heavy-weights respect, and last but not least he has a natural tendency to pick a scrap.
While anybody can get excited about technology and credited with having an “eye for a deal” not all take pleasure in going against the grain and refusing to accept things at face value. His eyes light up when he relates a story about being stopped by a friend who was meeting an investment manager representing one of the major asset managers about signing up for a new product. When the friend couldn’t understand the proposed deal he asked Barnes to explain in lay-man’s terms and Barnes ripped the sales pitch to shreds.
High profile dust-ups with the likes of William Kirsch and the Primedia board as well as around the Besa transaction are a highlight of Barnes’ career.
Charles Savage, the chief executive officer of subsidiary Global Trader notes that he brings a hard edge to his business dealings and he is not afraid to ask the tough questions of those working in his businesses.
“It is critical because he comes at it with a different set of questions but he also bears the responsibilities of the decisions,” says Savage.
Antony Ball from Brait describes Barnes as “an extremely clever guy” and believes his strength lies in the fact that he has seen many different facets of investment banking as both a banker and as a trader.
Barnes might be comfortable with the “previously rich and famous” moniker, but it’s hard to dispute that he is lining himself up for one more swing at the fences.
Mark Barnes:
Time line
1956
Born
1984
Joined Standard Corporate Merchant Bank (SCMB) in corporate finance.
1991 - 1996
Deputy MD of SCMB.
1995 - 2000
Chairman, South African Futures Exchange.
1996 - 2000
CEO of Capital Alliance and Brait.
July 2000
Ousted as Brait CEO.
April 2001
Barnes and Calajero fail to take out education group Advtech at 50c/share.
2002
Barnes, in his role as non-executive director of media group Primedia, ruffles feathers about executive performances.
July 2007
Purple Capital buys into Global Trader.
February 2008
Traders at the European arm of Global Trader conspire to sink the derivatives player’s international business.
July 2009
Barnes takes the unusual step of becoming an active market maker in Purple Capital’s shares.
2009
Barnes leads failed 11th hour bid to prevent JSE taking control of the Bond Exchange of SA.
2010
A year of consolidation for the Barnes stable as Purple reorganises itself.
2011
Remains to be seen...
BARNES’ BUSINESS TIPS
From corporate banker to entrepreneur, Mark Barnes has seen his fair share of businesses. He provides the following tips for those looking to make their mark:
* If you’re going into a meeting, do a bit of research about the potential client. It’s disrespectful not to.
* At the start of each year meet your management and identify a handful of potential future stars and then take those people aside and explain your plans for them. Some will fold under the pressure but those who don’t will up their game knowing they have a future.
* When you’re coming into a business and want to understand how it really works, go and sit with staff – irrespective of their job titles – and ask them to explain what they’re doing. If they can’t explain to you what they’re doing and why, then they probably shouldn’t be doing it in the first place.
* If you survive mistakes, you’ll be much better off for the experience.
* You have to have balls and say what you think or you’ll never know if it’s valuable.
* Don’t take yourself too seriously. When you think you’re too clever for the game it will screw you up.
BARNES ON banking and asset management
AS A FORMER BANKING insider, Mark Barnes has some pretty strong views on where South Africa’s financial services sector is headed – and it’s not a particularly flattering view.
“Let’s be clear on one thing: we avoided the banking crisis at least in part because South African banks weren’t even on the playing field.” He gives credit to SA’s regulators, which steered financial market players away from exotic international practices.
If Barnes is to be believed, asset management with its “asset gathering” mentality is fast becoming outdated, while banks are likely to become little more than clearing houses for transactions. He uses the example of the “no frills” offering of Capitec as an example of where traditional banking is headed. “Clients will disintermediate banks over the coming years,” he predicts, saying the response to the global financial crisis will ultimately speed up that process.
“People who lost the most money in the crisis got the most money back from governments. That money should have gone back to depositors,” he says, drawing an analogy with Zimbabwe as to what happens when governments insist on printing more money. In his view the solution to banking is neither increased capital nor regulations but rather consequence. If you collect bad assets then depositors get their money back and you go bust.
With governments worldwide currently keeping interest rates low to stimulate growth, there’s no incentive to keep money in a bank. “When cash is your enemy you have to put your money somewhere else – and that’s where a lot of economic logic starts faltering,” says Barnes.
MARK BARNES Quick facts
Currently reading?
Life, by Keith Richards, lead guitarist of the Rolling Stones.
It’s been a rocky few years for you personally. What’s surprised you the most?
Despite all the battles and the history, not once has anybody tried to put the boot in and kick me when I was down. To me that says a lot and I’m grateful.
If you had a billion dollars, would you be following the likes of Zuckerberg, Buffett and Gates and giving half of it away?
I understand what they’re trying to do but I’m absolutely bewildered by the idea. When is half of half of half fair?
What would you like to be doing in the next five years, beyond business?
I’d love to lecture at one of the business colleges on things such as financial markets and properly understanding products like derivatives.
Ashton holds shares in Purple Capital.
PURPLE CAPITAL
Where to?
It’s “work hard, play hard”
THERE’S NO QUESTION Purple Capital has seen better days. The heady highs of 230c/share in May 2007 are long forgotten, with its price currently trading at around 25c. And one has to ask whether it offers investors much. The stock has promised a lot but never really fulfilled its aspirations. So why not delist?
“If I could take it out at fair value then I would, but I can’t. And I promised myself I’m not going to be one of those guys who list at a price and then screw minorities by not realising any value and then delisting,” says Mark Barnes.
Essentially, the business has now pinned its hopes on derivatives trading firm Global Trader and sports betting start-up Powerbet, which trades as Voltbet on the retail side. There’s a small treasury and corporate advisory business within the group, as well as a non-operating investment in micro-lender Real People South Africa that may over time yield rewards. But for 2011 the story is likely to be whether or not Global Trader continues to benefit from increased trade volumes and the anticipated explosion in sports betting in South Africa.
With the blowout at its European operations and the collapse of competitor Dealstream, Global Trader still suffers from something of a credibility crisis. Its management is more likely to be found partying up a storm on the side of a racetrack or entertaining clients at Sandton’s more trendy nightclubs than a quiet day out with Johannesburg’s elite at Inanda Polo Club.
Yet it’s that “work hard, play hard” approach that’s seen Global Trader secure more than 3 200 retail clients and seen it continue to turn profits in its 2008 and 2009 financial years despite the global financial crisis.
Keith McLachlan, a small caps analyst at Thebe Securities, says the leaner Purple business is far easier to understand. “I think with Global Trader South Africa and Voltbet the group is heading in the right direction,” McLachlan says. Off the bat, one positive McLachlan notes is it retains the services of a big name auditor in the form of KPMG.
Asked what he’d like to see from the company, he said first prize was a business able to turn a consistent and sustainable profit, excluding one-off journal entries, and, second, to maintain and grow positive cash flow from all its operations. One area that grates McLachlan as an analyst is whether or not Purple really needs its “corporate advisory division” and, if so, it needs to prove it’s a standalone profitable business.
Brent Graham, of sports betting news and information portal Good For The Game, says such betting is gaining in popularity in SA and will receive another boost from the upcoming Cricket and Rugby World Cups, as well as this year’s expanded Super 15 rugby competition.
Graham says: “I think it’s the increased amount of access people have to the Internet that will fuel the real growth in sports betting.” About Voltbet specifically, Graham says while a number of international players had begun making a splash in SA, Voltbet was one of the few local companies that has remained standing. “What I like about Voltbet is that it has a user-friendly website and is very competitive with pricing.”
Apart from growth opportunities in Africa, there are also a handful of lucrative online casino licences coming up for grabs in SA in 2011/2012, which Purple is in the process of bidding for.
But one analyst was less impressed, saying that while Purple’s net asset value per share was 33c – indicating at first glance it was trading at a discount – it was actually only offering a tangible NAV of around 3c, which changes the picture dramatically. That’s partially influenced by a consolidation of operating assets and the decision to amortise a number of those assets this year. But Barnes counters that the strength of the group lies in technology, market share and people rather than assets.
Brait CEO Antony Ball notes Barnes will face a tough challenge competing in the corporate advisory and treasury businesses. “There are certain industries in SA where the big guys win more often than not,” says Ball. A lack of a solid balance sheet makes it tough to operate in markets where you’re competing against big banking groups.
Charles Savage, CEO of Global Trader, concurs with Barnes that Purple and its underlying businesses are deserving of a “survivor’s premium” having come through the past three years. “Up until last year August, people were still watching us closely, but that attitude has changed from ‘if we’re going to survive’ to ‘where is the business going from here’?” says Savage.
So what convinces Barnes that Purple Capital is still a contender? “For the first time in this group there’s a bit of gees among the staff. We have all moved into one office and now 80 people have one purpose. For example, I got into the lift the other day and one of the senior IT guys was there and the first thing he said to me was that he’d noticed the share price had risen by 1c. The fact that he’d taken the time to go and check meant a lot to me,” says Barnes.
He adds: “Another example is that over Christmas one of the sales guys took the effort to SMS Charles (Savage) and thank him for the job and talk about the opportunities the new year was bringing. When everybody has bought into that vision a lot can be achieved.”
The question now is whether a tidier Purple Capital and its underlying businesses can prove they’re worthy of being valued by the market with a “survivor’s premium”.
Voting with their wallets
DESPITE THE SWEAT and effort involved in turning Purple around, management and exco at the company haven’t had salary increases for the past three years. However, Purple’s directors are also finding their interests closely aligned with extracting value for shareholders. In November last year directors Charles Savage and Mike Wilson were each issued 4m share options valued at R920 000. The strike price of those options was 23c, roughly the level at which the share is currently trading. So if they want to make any money on those options, the “floor” level has been set.
