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REMEMBER when greed was good? That was the message from Gordon Gecko, the fictional character in the 1987 movie Wall Street, who argued that the very foundations of US success were built on avarice.
I was reminded of this mantra by the greed of the Reserve Bank's private shareholders. The issue will arise again in parliament this week, when a draft bill that will amend the central bank's legislation to limit the influence of its shareholders will be discussed.
The bank's shareholders are acting like characters from the movie, bent on asset stripping the central bank. They disguise this aim by waxing lyrical about corporate governance - or the so-called lack thereof - at the bank. But ultimately Michael Duerr, the German shareholder who claims he has mobilised about 15% of the private shareholders of the bank, wants to get his hands on the bank's assets, which run into billions of rands.
SA's Reserve Bank is one of about nine in the world with private shareholders. When the question of its "nationalising" was first mooted by ANC secretary-general Gwede Mantashe – that is, buying out the shareholders so that government owns the bank – I agreed with Mantashe. I argued that, as the 2 million shares in issue had been trading over the counter at about R10 to R12, the whole transaction shouldn't cost more than about R20m.
Get rid of these shareholders, I argued, because they are a nuisance and an irritant and serve no clear purpose for the good of SA. The Reserve Bank's job is incompatible with maximisation of shareholder value, and these shareholder activists are an unnecessary thorn in the side of the bank, which is a national treasure.
Buying up shares in bulk
Shareholders are only allowed to hold 10 000 shares each of the 2 million in issue, but Duerr has mobilised family and friends to buy up the shares to form a bloc. He is doing so for only one reason – to make money. Which is a problem, as the reserve bank's aim isn't to make a profit, but to run monetary policy and act as custodian of the country's foreign exchange reserves.
The trouble with Duerr is that R20m for all the shareholders won't do the trick. To him, the very thought is laughable. He has his eye on a much bigger prize, and one which – frighteningly – could be within reach.
When I wrote my first column calling for the shareholders to be bought out for about R20m, it hadn't yet become clear that government doesn't have a shareholding in the central bank and that legislation doesn't provide for government to buy out the private shareholders.
The Reserve Bank is a unique beast, and any attempt by government to buy out the private shareholders at the "prevailing" share price would be challenged in court.
What complicates the matter is that Duerr is using the investment treaty between SA and Germany in his case. An attempt to buy out the shareholders at a price way below the value of the assets could, in theory, trigger provisions of the investment treaty regarding expropriation.
If a court had to find that Duerr and his fellow shareholders were being "expropriated", the total amount the shareholders would have to be paid could exceed R10bn. Government simply doesn't have that money just to get rid of a nuisance.
In the meantime, Finance Minister Pravin Gordhan has provided details of draft legislation that will limit the power of Duerr and others like him, especially when it comes to using friends and family to build up a voting bloc.
Other changes include the nomination of directors by a broader cross-section of the public; the setting up of a panel to screen prospective board members; the clarification of the board's functions and powers and preventing shareholders of the Bank from circumventing the Reserve Bank Act.
Expropriating the nation’s riches
Ironically, Duerr reacted to this by saying to SA's The Times: "This is in contravention of international laws and investment treaties ... this is outright expropriation." This is ironic, for there's nothing that Duerr wants more than to be expropriated. That would mean billions of rands. He said he was speaking to his lawyers, and one can bet that the prevailing Reserve Bank share price of R12 wouldn't have been on the agenda.
On the agenda would have been the billions of rands in assets – including the bank's reserves, built up from its profits over the years, but possibly excluding the $40bn in gold and foreign exchange reserves which belong to the country, and not the Reserve Bank.
Some people argue that private shareholding is important to retain for the bank to keep it at arm's length from the government, and preserve its independence. But its independence is guaranteed in the constitution, and surely that should be enough.
The idea of having private shareholders to ensure the bank's independence is a noble one. But, in practice, shareholders want to profit from their shareholding. The existing shareholders are angry that the bank never declares a dividend of more than 10 cents per share, and are demanding 10% of profits.
The Reserve Bank's shareholders will continue to make unreasonable demands, and some will work behind the scenes for asset stripping, despite the new draft legislation before parliament. For legal reasons, this problem can't be solved by buying out the shareholders. What a pity.
It's quite simply an anomaly to have shareholders and not expect them to want to maximise the money they make. That's the unfortunate situation in which the Reserve Bank finds itself.
- Fin24.com
