Investec mulls disposal of UK mortgage unit

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Reuters

South African lender and asset manager Investec is considering the sale of UK-based mortgage business Kensington, extending plans to dispose of underperforming assets and boosting its shares.

Investec, which has already said it was looking to sell some of its operations in Australia, said it had received expressions of interest in Kensington but did not name these potential buyers. It had appointed corporate finance firm Fenchurch Advisory to help in the process and said there was no certainty any sale would take place.

Investec bought Kensington, which had specialised in lending to home buyers with a poor credit history, in a £283 million (R5.1 billion at yesterday’s rate) deal in 2007 – just before the global economic crisis, which sent a judder through the housing market in Britain and Ireland, where many of Kensington’s assets were located.

Since then Kensington has changed its focus to safer “prime” lending, but it has been dogged by a sharp fall in property prices in Ireland in particular, whose economy was one of the biggest casualties of the euro zone financial crisis. The parent company has been forced to take substantial impairment charges for its losses in that country.

However, signs of an economic turnaround may have created an opportunity to shed Kensington as some investors look to recovery plays.

“The market likes the restructuring in Australia and Kensington because they have been underperforming assets,” said Tracy Brodziak, a banking analyst at Old Mutual Equities.

“They just bought it at the wrong time of the cycle… a significant part of the mortgage book is in Ireland and that has obviously being a pretty poor environment in the last few years.”

Brodziak declined to estimate how much Kensington might be worth.

The Investec Limited share price, which had dropped sharply from a more than six-year high of R78.12 set last month, closed up 4.11 percent to R74 on the JSE yesterday.

The group last month named veteran banker Ben Smith to run its Australian investment banking arm, the latest attempt to turn around the loss-making business, following the resignation of Christian Nicks after four years in the post.

In a trading update yesterday, Investec reported a scant 1 percent rise in total operating income in the first nine months of the year, restrained by a downturn in the rand, though it gave no figure.

The group, which is also listed in London and reports its results in pounds, said it was hit by the sharp slide in the rand, while core loans fell 9 percent to £16.8bn. Impairment losses, however, shrank 26 percent.

Despite yesterday’s gains, shares are still in negative territory so far this year with a 1.1 percent decline, though they have outperformed a 3.4 percent drop in the Top40 index over the same period.


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