The debate over whether South African corporations should expand overseas has resurfaced again. FirstRand is ignominiously withdrawing from the UK, blaming the British regulator. It has concluded it is unlikely to achieve its enviably high returns on equity in what it considers to be the unfriendly regulatory regime in Britain.
The UK brought in heavy-handed regulation for life insurers’ salespeople in the early 1990s, when the Life Offices Association cartel in Mzansi was fighting commission disclosure to clients.
The British regulator went too far, perhaps: the huge tied-agency forces, as we know them here, which operate for Old Mutual, Sanlam and Liberty, no longer exist in the UK or Australia, where the regulator went down a similar route.
The Financial Conduct Authority has more recently turned its attention to motor showrooms and the way in which they provide vehicle finance. FirstRand was heavily exposed to the British vehicle finance market. In 2007 the group was run on a federal, decentralised basis, with little adult supervision from the centre.
Its autonomous motor finance shop, WesBank, bought a business in Cardiff, Wales, called the Carlyle Group. Perhaps it thought it was picking up David Rubenstein’s Washington DC-based private equity group for a song — the global financial crisis was looming, after all.
But this was the kernel for Moto Novo, which specialised in used car finance, an area that was often too risky for the conservative UK high street banks. By 2017 it was too expensive to finance Moto Novo off the South African balance sheet, so FirstRand bought Aldermore as a source of cheap retail deposit finance.
Not to say Aldermore is a bad business. It still hasn’t achieved FirstRand’s return on equity targets, but the bank had every confidence they could be achieved. It would say that, of course, but you have to respect the board and management at FirstRand, who are smart people. Even if, according to former fund management superstar Chris Logan, they have become more corporate over the years.
Professional managers have replaced the entrepreneurs who made the bank so strong, such as Laurie Dippenaar, Paul Harris and their young protégé, Michael Jordaan, whom the Financial Mail dubbed the Steve Jobs of South Africa.
The Financial Conduct Authority’s heavy-handed regulation was a black swan event that could not have been predicted — unless the bank had taken notice of the way in which insurance regulation progressed in the UK.
FirstRand won’t shed many tears when it sells Aldermore. It has no FirstRand DNA. It was not at all integrated into FirstRand. Unlike, say, Investec, it did not send over any of its top executives to run the business.
Investec MD Bernard Kantor relocated full-time to London to panelbeat the UK acquisitions into the Investec mould. Hendrik du Toit, its money management maven, also relocated (though he lives mainly on planes).
FirstRand would have had to, for example, relocate Harris to the UK if it wanted to show the same kind of commitment, which might not have been the right strategy, with the benefit of hindsight.
If you had bought Investec in 1997 — when Kantor and his strategy Svengali, Allen Zimbler, left South Africa — rather than RMB Holdings, you would probably be regretting it. The Investec go-go years were just about behind it.
Investec went out of favour during the “local is lekker” days from 2001 to the 2008 global financial crisis and the subsequent collapse of the Irish property market, to which Investec was heavily exposed.
Of course, Capitec has dramatically outperformed Investec and FirstRand with barely any international exposure. But Investec is a genuinely international bank. It rather irritatingly insists on presenting its results in sterling, even though it is South African at heart.
The head of Investec UK, Ruth Leas, still has unmistakably South African roots as a King David, Linksfield alumna, even if Kantor and Zimbler are now taking a well-earned rest. Investec is in pole position to shepherd South African businesses overseas. It is in the eye of the storm about the controversial Mr Price acquisition of German retailer NKD.
The new head of the Investec corporate and investment bank Dhiren Mansingh told me in an interview that as well as its top-three South African investment bank and its UK counterpart, it has offices in Germany through its recently acquired Capitalmind boutique, rebranded Investec a few weeks ago.
The NKD acquisition is being opposed by several fund managers, led by an improbably named boutique, Benguela. Even sister company Investec Wealth, led by veteran stockbroker Henry Blumenthal, is not too keen, telling clients it isn’t enthusiastic about Mr Price’s prospects if the deal goes through.
But such disagreements are par for the course in financial services. RMB Asset Management often took a different view on a share from Rand Merchant Bank itself, for example. It certainly would not feel obliged to follow a rights issue underwritten by the bank.
When Ninety One was still Investec Asset Management it would assert its independence. It would sometimes take a dog-in-the-manger attitude in its refusal to help its investment banking colleagues.
It is quite different from the Donald Gordon era, when “strategic assets” were not for sale. The GuardBank Growth Fund, which Liberty managed, was not allowed to sell Liberty shares until its exasperated fund manager, Sidney Place, insisted.
In the main life portfolio, positions in strategic shares such as Standard Bank and First International Trust (where Gordon housed his British interests) could not even be tweaked without the chair’s express permission.
Chinese walls need to operate with complete integrity. Dippenaar once told me it’s a hygiene issue, like a surgeon sterilising his equipment.
• Cranston, a financial journalist, is author of ‘The Mavericks’, a new book about South African fund management.
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