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Cape Town - The share price of SA bank Capitec, which at one stage on Tuesday morning was down 20%, ended the day only 2.96% weaker after steadily strengthening over the afternoon.
The bank’s leadership spent much of Tuesday afternoon in conference calls with shareholders and media interviews to push back at a report by US short seller Viceroy Research, which claimed the bank was a house of cards.
Viceroy research, a trio of traders and apparent short sellers who gained notoriety for releasing a report about Steinhoff in early December, published a 33-page report on Capitec at around 10am.
In it they wrote they did not buy Capitec’s “good news story” and labelled SA fourth largest bank by market capitalization a “loan shark” which was engaging in reckless lending practices.
Viceroy claimed that, according to its research, the bank had started “advising and approving loans to delinquent customers” in order to repay existing loans.
The report’s authors also alleged the bank may have to write off a total of R11bn in bad loans. With a market capitalisation of R95bn, thiswould equate to 11.5% of its total capitalisation.
The group also called for Capitec to be placed under curatorship by the SA Reserve Bank. The SARB, however, on Tuesday said that Capitec was solvent, well capitalised and had adequate liquidity.
Viceroy said it had based the Capitec report on what it had been told by ex-employees, former customers and “individuals familiar with the business”, as well as publicly available financial documents.
Parts of the report also linked to newspaper articles and court documents.
After the report was published, Capitec’s share price lost up to 20% of its value.
Afternoon rebound
On Tuesday afternoon, however, following an initial shareholder announcement in which it denied Viceroy’s claims and the publication of the SARBS’s statement, Capitec’s share price stated to firm.
The bank’s leadership, including its CEO Gerrie Fourie and CFO Andre du Plessis, spent an hour in a conference call with major shareholders from 16:00 to 17:00, and conducted numerous interviews with SA and US media in which they criticised Viceroy's report for being “full of inaccuracies”.
Fourie, at a media briefing in Cape Town, accused Viceroy of not understanding the bank's business, getting its figures wrong, and publishing the report with a clear "profit motive" to push down Capitec's price.
He said that Capitec's numbercrunchers had been unable to replicate the results of Viceroy’s sums.
The bank also later put out a detailed statement, in which it denied that was granting loans to delinquent customers to repay existing loans.
It also denied that Capitec was similar to Africa Bank, which was placed under curatorship in 2014.
“Capitec Bank is fully fledged retail bank and has different sources of income, not only credit. Its transactional business continues to contribute materially to its earnings as reported in our 1H 2018 results,” it stated.
“In addition, Capitec Bank has a significant retail deposit book, unlike African Bank. The result of this is that Capitec has a low reliance on wholesale funding.”
Viceroy, in turn, tweeted later on Tuesday evening that it was “preparing a response to Capitec's recent statement”.
