THE market will be anxious to hear from Standard Bank — when it releases its results on Thursday — about its efforts to turn around the struggling offshore operations and what the bank is looking to do to build up the return on equity in the rest of Africa, which was 10.6% in the six months to end June.
FirstRand, which releases its results on Tuesday, should be able to answer what the growth prospects are in the second half and whether the 20% plus growth in earnings expected will not run out of steam this financial year.
The group should, one hopes, give some insight on the progress of its retail strategy in Nigeria following the opening of a Rand Merchant Bank franchise in that country last month.
With Standard releasing its full-year results on March 7, analysts are forecasting normalised headline earnings per share growth of 10%. Last month, it released a trading statement saying it expects normalised headline earnings per share to be 8%-12% higher.
FirstRand said in its statement that it expected to report normalised headline earnings per share growth of between 22%-27%. "Assuming the midpoint of about 10%, the trading update was about 3% above the consensus estimates of over 7% at the time. Liberty’s strong earnings probably drove this," says Cadiz Asset Management equity analyst Adrian Cloete. Standard’s life insurance subsidiary, Liberty, reported a 39% increase in earnings for the full-year ended December.
"Standard Bank should show strong income growth of at least double digits, but costs will probably also increase in double digits, partly from restructuring costs in the UK," says Mr Cloete.
Last November, Standard announced it was cutting 15% of its 900 staff in the UK and was implementing a raft of other measures at its international corporate and investment banking unit, which has battled to grow revenue and deal with substantial impairments. The bank then aimed to achieve cost cuts of up to $100m from its international corporate and investment banking unit.
The market awaits the progress on achieving these cost savings.
When Standard posted its interim results to June, it said its businesses outside Africa were operating at a loss. Standard Bank’s UK business posted a headline loss of $34m in the six months to June. Costs rose 7%.
"I think the market will want to hear that the offshore operations and Africa are being addressed and that impairments are coming down offshore," says one Johannesburg-based analyst.
SA Stockbrokers portfolio manager Ron Klipin says Standard Bank will likely show strong growth from its South African operations.
The bank has had a good reputation on growing its loan book and pricing loans correctly.
But Mr Klipin believes that if the rest-of-Africa strategy is well managed then things will turn for Standard Bank. "They are on a phase of transition. The journey is taking a long time. But they will probably turn the cusp of the corn in 2013-14."
Outside South Africa, Standard Bank has a presence in 17 African countries and the market will want to hear what is happening with the return on equity and whether capital will be allocated away from offshore to the rest of Africa. Standard Bank’s group CEO for personal and business banking, Peter Schlebusch, has been deployed to the rest of the continent to grow the bank and drive efficiencies.
Mr Cloete expects FirstRand to show operating income growth of 15%-20% on Tuesday with strong contributions from both net interest income and noninterest revenue.
There is an expectation of a double-digit growth in advances.
"RMB’s (Rand Merchant Bank’s) results should be good, FNB (First National Bank) as well as WesBank will probably have excellent performances," adds Mr Cloete. FNB has been innovative. The bank has come up with a solid price offering which has helped it gain clients.
Standard Bank and FirstRand are South Africa’s largest banks, respectively, by market capitalisation and even assets. FirstRand has a market capitalisation of R174bn, while Standard Bank has a market capitalisation of R186bn.
In November last year, FirstRand overtook Standard Bank as the JSE’s biggest bank by market capitalisation.
FirstRand had a market capitalisation of R171.2bn, beating Standard Bank’s R170.3bn. However, Standard Bank has clawed back to its top position.
FNB as well as WesBank will probably have excellent performances