JOHANNESBURG – Gung- ho Investec says it plans to grow its pri- vate bank organically in the UK, having got rid of a number of European and Australian acquisitions that were weighing on earnings. Speaking to journalists ahead of presenting the specialist bank and asset manager’s results for the six months to September 30, Investec CEO Stephen Koseff said it would use the proceeds from the sale of these businesses to grow its UK specialist bank but was not looking at any acquisitions to reach scale. Investec has some £2 billion from the sales of its Australian bank, its UK mortgage business, Kensington, as well as the Start mortgage business in Ireland.
“A couple hundred million quid” of this would be used to improve its capital ratio by about 1.5% and meet more intensive regulatory capital requirements under Basel, Koseff said.
But the bank was well capitalised in the UK and in a strong position to grow in a market with five million target clients. “We are not thinking of a special dividend now. We have worked hard to sustain our capital position through very troubled times,” Koseff said in response to a comment around getting rid of excess cash. Investec’s dividend per share increased 31.1% to 312c. Legacy business in its UK specialist bank, which will take three to four years to clear, reported a £52.2 million loss, which was slightly more than the £49.2 million loss reported for the same period in 2013. Ongoing business reported operating profit of £70.2 million pounds. Investec Bank’s impairment losses on loans and advances decreased from R299 million to R219 million. The 19% depreciation in the rand: pounds sterling exchange rate over the period negatively impacted Investec’s operating profit for the six months, which was up 8.6% in sterling. On a currency neutral basis it climbed 21.8% to around £241 million (R4.3 billion), while in rand terms it was up 26.9%.
Investec’s asset management business posted a 6.6% rise in operating profit to £76.7 million (R1.3 billion), with total asset under management of £71.7 billion (R1.2 trillion) at September 30. Its wealth and investment business grew operating profit 23.3% to £38 million (R657 billion), with total funds under management of £43.7 billion (R756 billion). The specialist bank grew operating profit 6% to £126.1 million (R2.2 billion), with the growth of its private bank in South Africa boosted by the One Place offering. This gives clients integrated access to banking and investment services, both locally and internationally, on one platform. It will be made available to clients in the UK and elsewhere in future. Net interest income rose 15.5% to R2.8 billion, with the bank “benefiting from an increase in its loan portfolio and a positive endowment impact”, it said in a results statement. Income from fees and commission climbed 9% to R690 million. Investec now derives 48% of profits from its asset and wealth management businesses, with the remaining 52% coming from the specialist bank. Five years ago 80% of earnings came from the specialist bank. Investec’s Southern Africa business accounted for roughly 68% of operating profit for the six months to September 30. Koseff said the bank was moving from “reshaping to growth” and the geographic split of the future revenue mix would depend on where these growth opportunities were. “We never try and manage that, we grow where we can grow,” Koseff said. He said that while economic conditions had improved in the developed world, volatility remained a feature and eco- nomic growth had been weak in South Africa. “We think we are in a favourable position to make progress in the core South African business,” he maintained.
It would continue to focus on its core South African and UK businesses, opening up offices for its wealth management business in Hong Kong and “one or two other places in time”. These would be sales offices, Koseff said, and Investec was not “looking for banks anywhere”. Investec’s cost to income ratio ticked upwards to 67.8%, but Koseff said it was in a position to manage this down to below its 65% target. Return on equity (ROE) climbed slightly to 10.7% for the period, below the 12-16% target.
Indonesia Gets Octane Boost
Indonesian President Joko “Jokowi” Widodo announced a fuel price hike of 2,000 rupiah per litre for both gasoline and diesel, confirming speculations he would announce his decision after the G20 event. The new gasoline price is now 8,500 rupiah, or 31% higher, while the price for diesel is 7,500 rupiah, or 36% higher.
The market had been expecting a fuel price hike before the end of the year, and a delay would have been seen as negative for Jokowi’s reform agenda. We expect this to have a positive impact on Indonesia’s stock market (JCI), but near term upside will be driven by multiple re-rating rather than growth. The JCI is currently trading at a forward price-to-earnings ratio of 14.3 and if the reform agenda can be implemented, it should re-rate to its peak multiple of around 16 times forward price to earnings.
With more than a 30% hike in fuel prices, the Indonesian economy is likely to suffer in the near term. Our economist expects GDP growth to be 5.5% in 2015 and inflation to rise to around 7% in the next few months while the benchmark interest rate remains flattish. However, the fuel price hike will save the subsidy budget almost 120 trillion rupiah, according to the government, and the current account deficit is expected to be closer to 2% of GDP. We believe this is a positive step to strengthen the Indonesian economy and the rupiah in the near term.
Indonesia’s fuel subsidy would account for 17% of the government’s spending budget in 2015, and the savings could be reallocated to fund more useful investments in the DBS Asian Insights Conference Indonesia, the country’s Minister of National De- velopment Planning (Bappenas) Andri- nof Chaniago shared the government’s five-year plan aimed at strengthening economic fundamentals in the longer term.
Infrastructure development is crucial and the government targets some US$450 billion worth of projects within the next five years. The biggest spending will be on maritime-related projects,
Propelling Indonesia’s Infrastructure Development
Making up some 15% of the total amount. Energy and electricity generation and road building are also key target areas for the government. The role of the private sector is important. Bappenas estimates that private sector funding for these projects will make up some 30% of the total amount. That means an average of US$27 billion of private sector investment in infrastructure works is needed every year from now until 2019. This is not a small amount as it is roughly equivalent to the outstanding liquid assets in the domestic banking industry currently. And for that reason, Chaniago also reiterated that the government welcomes foreign investors. Indeed, as long as it is not just about commodities, the country is still very much open for business for foreign investors.
Infrastructure development is a long process. It is hard to judge the success of the government’s five-year plan in the short timeframe that is sometimes demanded by financial market participants. But 2015 will be the first test for the government to prove its worth in ensuring effective public-private partnerships. A lot of scrutiny will be on the energy sector, as structural reforms are badly needed here. Yet, unlike road building or the maritime revolution, the problems in the energy sector are often associated with inefficient bureaucracy and rent- seeking behaviours more than anything else. President Joko Widodo and his team will do well if they can continue to tackle the challenges on this front.
infrastructure, healthcare, energy and education sectors. A fuel price hike will benefit Wijaya Karya, Wijaya Karya Beton, Kalbe Farma, Jasa Marga (Persero) and Perusahaan Gas Negara. Meanwhile, higher fuel prices will be a near-term negative for discretionary consumption and the consumer, auto and multi finance sectors.
Upside Surprise in Singapore GDP?
A modest upward revision is on the cards for Singapore’s September quarter GDP. The headline number is expected to report an expansion of 1.7% on-quarter and 2.6% on-year. This will be up marginally from 1.2% on-quarter and 2.4% on-year, as indicated in the advance GDP estimates reported last month. This upward revision can be attributed to two key factors – better than expected September industrial production growth and a slightly stronger showing from the services sector.
September industrial production posted a contraction of 1.2% on-year, but the decline was less than what was previously factored in by the official advance GDP estimates. The advance estimate of 1.4% on-year for manufacturing sector growth in the September quarter essentially assumes a decline of 2.8% on-year in September industrial production. So with a lower than expected drop for September, overall manufacturing growth in the September quarter now registers 1.9%, which is higher than the official estimate. Consequently, this also implies an upward revision of about 0.15 percentage points to the GDP growth estimate of 2.4% for the quarter.
Moreover, an upward revision to service sector growth should not come as a surprise. Sequential growth for this sector was projected to be a mere 1.3% on-quarter, a sharp moderation from 4.8% in the previous month. Though services growth has been affected by the existing labour crunch, it pays to note that the advance GDP estimate has a tendency to underestimate services growth. In our opinion, business activities may have been affected by the labour shortage but the outlook in the service sector has largely remained buoyant.
Our full-year GDP growth forecast remains at 3.0%. But with the sluggish growth momentum recorded over the last three quarters and given the patchy global recovery thus far, it now appears that the full-year number may fall marginally short of this target unless the December quarter springs some upside surprises. With that, it is also likely that the official GDP growth forecast for the year will be adjusted to 2.5%-3.0%, from 2.5%-3.5% previously.
Feb 21, 2018 0Christy Walton was born in 1955 .Walton has described...