Ominous signs for banking fortunes

Ominous signs for banking fortunes

2010-08-06 14:48

Johannesburg - In an inauspicious start to the reporting season, three out of South Africa's big four banks have failed to meet market expectations.

After Nedbank Group [JSE:NED} and Absa Group [JSE:ASA] reported disappointing interim figures earlier this week, Standard Bank Group [JSE:SBK] posted a trading update on Thursday advising investors its six-months earnings would be 6% to 12% higher than last year. This is below earlier expectations, with most market commentators having anticipated a 14% to 18% earnings increase.

Nedbank posted increased headline earnings of 8.2% on Tuesday, although its retail unit continued to bleed R115m. CEO Mike Brown indicated the bank was undertaking a strategic review of this division, which had contributed R1bn as recently as 2008.

On Wednesday, Absa reported a 1% increase in headline earnings.
Stephen Meintjes, head of research at stockbrokerage Imara SP Reid, was not particularly upbeat about the banking roups' performances.

He told that Absa had benefited from lower impairments on loans, "but no one's going to be lending much more in the rest of this year".

Low lending levels to corporates and consumers mean banks need to generate more of their revenue from investment banking and transactions, as opposed to interest on loans.
"The results are particularly disappointing given the fact that there is little sign of improvement in any of the major business segments," said Meintjes. "We now stand in a similar position to six months ago, with uncertainty still dogging the outlook for the sector.

"The continuing issues with the retail segment are a major concern, and it will be important for the bank to at the very least arrest this decline in the next six months, along with formulating some clear plans for ensuring its enhanced profitability going forward."
Rising costs were identified by both stockbrokerage Barnard Jacobs Mellet Holdings [JSE:BJM] (BJM) and Deutsche Bank as a problem at Absa, with this figure rising by 14% year-on-year.
Absa confirmed on Thursday that it was looking to spend as much as R8bn on information technology infrastructure in the next three years - another add to the cost line.

On Thursday, Standard Bank advised the market that headline earnings would come in at around 6% to 12% higher than the previous period. This is slightly below analyst expectations, with most having anticipated 14% to 18%.

Following the trading update, BJM reiterated to clients that Standard Bank remained one of its preferred stocks in the sector and they could accumulate the stock at below R105 per share.
By Friday midday, Absa was up 10c (0.1%) to R134.20, Nedbank was down 0.9% (119c) to R130.30 and Standard was down 1% (105c) to trade at R108.60.

*The writer holds shares in Standard Bank.

  • J - 2010-08-07 16:24

    May they all Rot. They have all been involved in the sub prime deals, against exchange controls

  • Dave - 2010-08-07 17:55

    Are the chickens slowly coming home to roost? People are getting more and more fed-up with these major thieves who steal and plunder accounts with exorbitant fees. More and more Mr Public are wizing up and leaving these sinking ships for Bidvest and Capitec. The public are told to "save". It's cheaper and safer to bury your cash in your backyard. Billions spent on hand outs to executives and sponsoring. Is that supposed to impress?

  • Skylimit - 2010-11-05 07:54

    Yip ! You reap what you sow !I for one am in the process of clearing all my debt and not taking on any more and won't be for the forseeable future.If what you want is important enough then save for it (preferably not through a bank).

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