Johannesburg - FirstRand is the third of the big banks to report a hit from the controversial collapse of First Strut earlier this year.
Notice of the exposure followed yesterday’s release of FirstRand’s results for the 12 months to June, which revealed a strong 20 percent hike in normalised earnings a share to R2.718. Nedbank and Investec have also reported knocks from lending to First Strut.
Group chief executive Sizwe Nxasana told Business Report yesterday that FirstRand’s exposure to First Strut, an industrial group whose chairman Jeff Wiggill was found dead in June, was about R243 million.
“We have provided in full for this sum,” Nxasana said, adding that specific provisions had been made at Rand Merchant Bank (RMB), which had participated in First Strut’s bond issue, and at WesBank, which had financed a fleet of vehicles for First Strut.
Yesterday, FirstRand announced a final dividend of 81c a share, which was ahead of expectations and brought the total dividend for the year to R1.36 a share, 33 percent ahead of last year’s dividend.
FirstRand financial director and chief operating officer Johan Burger told analysts at yesterday’s presentation that the higher-than-expected dividend and the reduced dividend cover were justified by the past two years’ performance and the group’s capital requirements. Burger said a dividend cover of two times “is sustainable” on a two- to three-year outlook.
The group’s normalised return on equity increased to 22.2 percent and was underpinned by solid contributions from FNB and RMB, which both increased normalised earnings by 20 percent, and a 10 percent advance from WesBank.
Burger described RMB’s performance as “an excellent outcome given the headwinds”. He added that the latest figures exceeded the “record results” reported by RMB back in 2007.
Burger said RMB had seen an increase in “earnings quality” and that all of its business units, except private equity, had reported growth. RMB accounted for 29 percent of FirstRand’s normalised headline earnings of R15.3 billion.
WesBank, which accounted for 19 percent of earnings, reported a “resilient” 10 percent increase to R2.8bn.
The group continues to be dominated by FNB, which contributed 53 percent of total normalised headline earnings. In the year under review, FNB increased normalised earnings by 22 percent to R8.2bn.
Nxasana said this strong performance was underpinned by FNB’s strategy of growing and retaining core transactional accounts by offering innovative products and channels at an acceptable cost supported by attractive rewards programmes.
During financial 2013, FNB, which is regarded as a leading innovator in the local banking industry, recorded 2 500 innovations. Nxasana described some of these as “mini-vations” that “beget bigger innovations” and said that they reflected the extent to which innovation was built into the group’s culture.
He added that FNB’s focus on innovation was “changing how banking is done in South Africa”.
When asked if this might be threatened by the departure of FNB chief executive Michael Jordaan, Nxasana said that one of the key issues in the selection of Jordaan’s replacement was the need for continued focus on innovation. “Jacques [Celliers] will take FNB’s innovation to the next level.”
Kagiso Asset Management analyst Jihad Jhaveri said FirstRand’s South African businesses “are enjoying a period of operational outperformance, driven by strong innovation, market share gains and a great customer proposition”.
Jhaveri noted that the group had a strong balance sheet “with significantly higher bad debt provisions than its peers, to weather the tough economic conditions we see lying ahead”.
Despite setbacks for its plans to expand into Nigeria and Ghana, FirstRand remained optimistic about its African expansion strategy, which it said was on track and making progress.
FirstRand shares rose by 3.19 percent to close at R32.30. - Business Report