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Absa explains African Bank deductions

Cape Town - The ripple effect of the curatorship under which the SA Reserve Bank (Sarb) has placed African Bank a week ago, is growing wider and wider.

ALSO READ: Rescue plan for African Bank

A Fin24 user Michael van Schalkwyk wrote to say that his family received notices from Absa that deductions had been made from their money market savings accounts due to the impact of the African Bank issue.

"Over the weekend my parents and my uncle have both been notified by Absa that more than R2 000 has been deducted from their money market savings accounts to subsidise Absa’s losses in African Bank," Van Schalkwyk wrote on Monday.

"This must be illegal? Never mind that Absa did not share their huge profits with Money Market account holders in previous years."

Fin24 asked Absa to clarify the matter.

ALSO READ: How African Bank fail impacts Ellerine customers
African Bank curator answers questions from clients

Byron Kennedy, head of media relations at Barclays Africa, responds:

It is important to highlight upfront that Absa Bank’s savings accounts and deposits are not impacted as the exposure to African Bank was held by the Money Market Fund managed by Absa Active Management (AAM).

The AAM Money Market Fund had about 3% exposure to African Bank when the South African Reserve Bank (Sarb) placed African Bank under curatorship on Sunday 10 August.

On Monday August 11 the Financial Services Board (FSB) issued an instruction to all Money Market Funds with exposure to African Bank regarding how to process Sarb’s decision.
 
This had an impact on all seven of South Africa’s Money Market Funds with exposure to African Bank, including the AAM Money Market Fund. This resulted in a capital adjustment of about 0.3% in the AAM Money Market Fund.

Absa Bank announced on Friday August 15 2014 that it removed all African Bank investments from its AAM Money Market Fund. This was done to provide certainty and confidence to investors in the fund.

Earlier on Tuesday August 19 Absa Active Management announced that Fitch had upgraded the AAM Money Market Fund by four notches from A to AA+ and removed the fund from a negative rating’s watch.

This follows the decisive action on Friday to remove all African Bank exposure from the AAM Money Market Fund.

In justifying its upgrade, Fitch said in a statement on Monday that “the removal of the African Bank exposure has removed uncertainty from the fund” and that this move “has had a materially positive impact on the fund’s credit quality".

The ratings agency also highlighted that, as of August 15 2014, the AAM Money Market Fund “comprised only the five highest credit quality South African banks, international banks and government securities making the fund's composition comparable to the most conservative money market funds currently active in South Africa.

The five highest credit quality banks Fitch references are Absa, FirstRand Group (through RMB), Investec, Nedcor and Standard Bank.


READ MORE HERE: Absa ditches African Bank investments

Circular from the FSB:

To Managers of money market portfolios,

Following a number of enquiries, the registrar hereby wishes to provide his position for the  treatment of Abil money market debt paper held in money market portfolios, following Sarb’s communication of a write down in value of such debt of 10%.

This is also to clarify the position as stated by Asisa in their e-mail communication earlier today.

The newly promulgated Board Notice 90 of 2014 provides at paragraph 7 that “a reduction in value occurs where a loss of a sale or a default of a money market instrument results in a loss greater than the income accrued in the portfolio in an accounting period”.

The standard supplemental deed pertaining to money market portfolios (where it amends paragraph 27 of the main deed) further provides for the reduction of the capital portion by means of reducing a proportionate number of participatory interests.

It is clear, therefore, that a reduction in value has taken place when a money market instrument has a loss greater than the daily yield (daily income) of the portfolio in an accounting period.

Please note that an accounting period for a money market portfolio is one day and not a month.

Taking account of the provisions of BN 90 of 2014 and the Supplemental Deed the full 10 % write down on Abil paper must be done today, first by reducing the value of the daily yield and then by reducing the value of the capital.

Accordingly, a reduction of the R1 value of a participatory interest will not be necessary provided the capital portion reduction (after taking the day’s income to zero) is done by means of a reduction in the number of units.

In line with TCF, the registrar expects appropriate transparent communication by managers to affected investors.

Managers are also reminded that the deed does not preclude a manager from waiving its remuneration or rebating it to the portfolio.

ALSE READ: Ex-African Bank boss not remorseful
                    African Bank too inclusive to fail

- Fin24

* Have you been affected by the African Bank crisis? Let us know.

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