IT DOESN’T make sense for Old Mutual to sell its banking asset, Nedbank. In my opinion, it would be a dumb move. This is not an emotional argument that simply says Nedbank cannot be sold because it’s a nice-to-have in the Old Mutual Group stable. I know, and have argued before, that financial assets are not like a hot girlfriend you want to always keep at your side.
You don’t fall in love with an investment — that’s investment 101. You sell an asset when you think it makes financial sense to do so, just as Sanlam did with Absa back in the day.
So what about Nedbank? Of course Nedbank is a great bank to have for Old Mutual, but not just to show off. Selling Nedbank would be equivalent to selling the goose that lays the golden egg. We are talking about a business that generated R10.8bn in headline earnings in the 2015 financial year, and Old Mutual owns 54% of this. Would group CEO Bruce Hemphill do that? I doubt it. I may be wrong, but I’ll state my case.
Nedbank has continued to do well under CEO Mike Brown. It generated more earnings than any other division of the Old Mutual Group in the 2014 financial year.
If you conduct an operating profit contribution analysis you will note that Nedbank brought in £770m; Old Mutual Wealth in the UK generated £227m; Institutional Asset Management and Rogge Global Partners, generated £131m; and Old Mutual Emerging Markets — call it Ralph Mupita’s business or the insurance business in SA and in the rest of Africa — had £617m in adjusted operating profit. This means Nedbank contributed about 48% of the Old Mutual Group earnings in the 2014 financial year.
When Old Mutual Group posts its results for its 2015 financial year this Friday, the picture is unlikely to be much different. I suspect that earnings in Old Mutual Wealth in the UK will have grown faster, and the needle will at least flirt with the £300m mark. Old Mutual Emerging Markets will grow too, and perhaps reflect some earnings generated from the rest of Africa. But you can bet Nedbank will still be the boss of earnings.
So why sell it? What I suspect, though, is that the Old Mutual board believes Old Mutual Wealth is now in a position where it can be separated from the Old Mutual Group.
By separation, I mean Old Mutual Wealth is either ripe for sale to interested parties, or it will be listed separately in London. With a sale and/or separate listing of Old Mutual Wealth, Old Mutual Group, which was started by Scotsman John Fairbairn in Cape Town in 1845, would then primary-list on the JSE. In fact, the Old Mutual Emerging Markets business would then list separately in Johannesburg.
With a separate listing in Johannesburg, Old Mutual Emerging Markets would then be housed in new multibillion-rand headquarters in Sandton. These headquarters are under construction. In my model, Old Mutual Emerging Markets would then have some exposure to Nedbank, Old Mutual SA and general insurance business Mutual & Federal.
The Old Mutual SA business is the one headed by Dave Macready.
Again, I may be wrong, but I doubt if Hemphill would sell Nedbank, because that would mean that Old Mutual loses a crucial distribution network for its long-and short-term insurance products. If Nedbank were sold and Old Mutual Wealth were also sold and/or listed separately in Johannesburg, Hemphill would, arguably, no longer have a job. Nedbank is one of SA’s most transformed companies at the top executive management. With Ciko Thomas promoted to head of retail and business banking, it has more black leadership at the top than others. It counts Thomas, Mfundo Nkuhlu and Raisibe Morathi among these and shows that a pipeline works well for succession.
If Thomas succeeds at retail and business banking, age still allows him to even take over the Nedbank Group. He has at least a decade to do that.
The transformation at the top at Nedbank compares well with Standard Bank, with Sim Tshabalala and a strong pipeline with people such as Funeka Montjane, Zweli Manyathi, Sibongiseni Ngundze and Lincoln Mali. But they operate below the level of Thomas, Nkuhlu, Peter Schlebusch or David Munroe at Standard Bank.
At Barclays Africa, Nomkhita Nqweni is the only black person running a profit centre in Maria Ramos’s executive committee.
• Ndzamela is finance writer
Old Mutual. Picture: BLOOMBERG/SIMON DAWSON
IT DOESN’T make sense for Old Mutual to sell its banking asset, Nedbank. In my opinion, it would be a dumb move. This is not an emotional argument that simply says Nedbank cannot be sold because it’s a nice-to-have in the Old Mutual Group stable. I know, and have argued before, that financial assets are not like a hot girlfriend you want to always keep at your side.
You don’t fall in love with an investment — that’s investment 101. You sell an asset when you think it makes financial sense to do so, just as Sanlam did with Absa back in the day.
So what about Nedbank? Of course Nedbank is a great bank to have for Old Mutual, but not just to show off. Selling Nedbank would be equivalent to selling the goose that lays the golden egg. We are talking about a business that generated R10.8bn in headline earnings in the 2015 financial year, and Old Mutual owns 54% of this. Would group CEO Bruce Hemphill do that? I doubt it. I may be wrong, but I’ll state my case.
Nedbank has continued to do well under CEO Mike Brown. It generated more earnings than any other division of the Old Mutual Group in the 2014 financial year.
If you conduct an operating profit contribution analysis you will note that Nedbank brought in £770m; Old Mutual Wealth in the UK generated £227m; Institutional Asset Management and Rogge Global Partners, generated £131m; and Old Mutual Emerging Markets — call it Ralph Mupita’s business or the insurance business in SA and in the rest of Africa — had £617m in adjusted operating profit. This means Nedbank contributed about 48% of the Old Mutual Group earnings in the 2014 financial year.
When Old Mutual Group posts its results for its 2015 financial year this Friday, the picture is unlikely to be much different. I suspect that earnings in Old Mutual Wealth in the UK will have grown faster, and the needle will at least flirt with the £300m mark. Old Mutual Emerging Markets will grow too, and perhaps reflect some earnings generated from the rest of Africa. But you can bet Nedbank will still be the boss of earnings.
So why sell it? What I suspect, though, is that the Old Mutual board believes Old Mutual Wealth is now in a position where it can be separated from the Old Mutual Group.
By separation, I mean Old Mutual Wealth is either ripe for sale to interested parties, or it will be listed separately in London. With a sale and/or separate listing of Old Mutual Wealth, Old Mutual Group, which was started by Scotsman John Fairbairn in Cape Town in 1845, would then primary-list on the JSE. In fact, the Old Mutual Emerging Markets business would then list separately in Johannesburg.
With a separate listing in Johannesburg, Old Mutual Emerging Markets would then be housed in new multibillion-rand headquarters in Sandton. These headquarters are under construction. In my model, Old Mutual Emerging Markets would then have some exposure to Nedbank, Old Mutual SA and general insurance business Mutual & Federal.
The Old Mutual SA business is the one headed by Dave Macready.
Again, I may be wrong, but I doubt if Hemphill would sell Nedbank, because that would mean that Old Mutual loses a crucial distribution network for its long-and short-term insurance products. If Nedbank were sold and Old Mutual Wealth were also sold and/or listed separately in Johannesburg, Hemphill would, arguably, no longer have a job. Nedbank is one of SA’s most transformed companies at the top executive management. With Ciko Thomas promoted to head of retail and business banking, it has more black leadership at the top than others. It counts Thomas, Mfundo Nkuhlu and Raisibe Morathi among these and shows that a pipeline works well for succession.
If Thomas succeeds at retail and business banking, age still allows him to even take over the Nedbank Group. He has at least a decade to do that.
The transformation at the top at Nedbank compares well with Standard Bank, with Sim Tshabalala and a strong pipeline with people such as Funeka Montjane, Zweli Manyathi, Sibongiseni Ngundze and Lincoln Mali. But they operate below the level of Thomas, Nkuhlu, Peter Schlebusch or David Munroe at Standard Bank.
At Barclays Africa, Nomkhita Nqweni is the only black person running a profit centre in Maria Ramos’s executive committee.
• Ndzamela is finance writer
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