Absa - from best bank stock to worst

INLSA

10/02/2012 Group CEO of Absa Maria Ramos during their financial results at Sandton JHB. (793) Photo: Leon Nicholas

Absa Group has gone from being South Africa’s best-performing bank stock to its worst after an exodus of executives, slowing income and lower profit this year under chief executive Maria Ramos.

Absa delivered the lowest returns on the six-member JSE banking index between March 2009, when Ramos was appointed, and the end of the second quarter this year.

In the prior five years, Absa was the best performer among the four largest banks, returning 78 percent.

While rivals Standard Bank and FirstRand are boosting lending, Absa’s market share in South African loans fell to 23 percent in the year to June, from 25 percent a year earlier. Net interest income growth, the difference between the revenue generated from assets and expenses, was the lowest among its peers last year. Since the appointment of Ramos, a former chief executive of Transnet, at least 12 senior executives have resigned, including chairwoman Gill Marcus and deputy chief executive Louis von Zeuner.

“On the trend so far, she hasn’t done well,” said Kokkie Kooyman, the head of Sanlam Investment Management Global, Absa’s sixth-largest shareholder. “It generally is very short-sighted to get rid of experience.”

Absa surprised investors on June 26 when it reported first-half earnings before one-time items fell as much as 10 percent in the first half of the year because of rising bad loans, causing the stock to post its biggest fall in a decade. The bank also said asset and revenue growth this year would be “muted”.

“No organisation is dependent on one or two people and Absa is no different,” Ramos said on Wednesday. “No one focuses on the people who have joined us and who are strong and competent and able and who have been part of the succession planning.”

The bank’s revenue increased 5 percent last year, less than its three largest rivals, to R24.43 billion.

“Absa’s revenue growth has been non-existent and its lack of any risk appetite is concerning,” Afrifocus Securities head of research Johann Scholtz said. “I don’t know why Absa hasn’t exploited its primary bank client base.”

Still, when Ramos took over at Absa in 2009, South Africa was in its first recession in 17 years and the global economy was in a slump. She has been named by Forbes and Fortune magazines as one of the top 100 most powerful women in business and said in February that profit last year increased 19 percent to R9.67bn. She also boosted its final dividend, increasing last year’s total payout by 50 percent to R6.84 a share.

Ramos needed to experience a full boom and bust cycle at the bank and until that happened “she should be given the benefit of the doubt”, Avior Research analyst Faizal Moolla said. “Maria needs to adjust the cost base more rapidly and aggressively, which might involve more retrenchments. She also needs to address advances growth, which is lagging behind peers and negatively impacting the top line.”

Ramos joined Transnet in 2003 and oversaw a reorganisation that included a return to profitability and the disposal of units outside rail, port and pipeline operations. Born in Lisbon, Portugal,

Ramos holds a masters degree in economics from the University of London and spent 10 years working for a unit of FirstRand before helping to formulate the ANC’s economic policies in the run-up to the elections in 1994.

Barclays, the UK’s second-largest bank, bought 54 percent of Absa in July 2005 for R32.8bn. At the time, Barclays planned to sell its African operations in more than 10 countries to Absa to make the merged entity the continent’s leading bank. Absa declined to buy those businesses and sold two African assets. Absa now operates only in Mozambique and Tanzania outside South Africa.

Barclays chief executive Robert Diamond, who resigned on July 3 after regulators fined the UK bank for attempting to manipulate the London interbank offered rate, sought to boost the lender’s profitability by combining Absa and Barclays’ products and customer bases across 14 African countries under the bank’s “One Africa” strategy.

“The Africa strategy has again been reiterated and supported by both the Barclays executive committee and the board,” Ramos said. “The ‘One Africa’ strategy remains very much top of the agenda.”

Scholtz said: “The closer integration of Absa with Barclays was something Diamond was pushing so now the uncertainty is a concern.” Barclays was unlikely to reconsider its investment in Absa “but the possibility will continue to feed into Absa’s share price”, he said.

Absa is the only South African bank stock to have declined in the year to date. The share price plunged 8.3 percent to R143.50 after the June 26 statement, which prompted investors to question why the bank had underestimated bad debt levels.

Absa rose 0.48 percent to close at R139.62 yesterday, while the JSE banks index fell 0.77 percent. – Bloomberg