Investec Holders to See Cash Return After Asset Unit Spinoff

JOHANNESBURG (Capital Markets in Africa) – The bank, which has offices in Johannesburg and London, is readying a spinoff of its asset-management business in March and also plans to sell some private-equity investments. The lender wants to reduce its 25 billion rand ($1.7 billion) of private-equity holdings to 15 billion, Richard Wainwright, the chief executive officer of Investec’s South African bank, said in an interview at the lender’s local headquarters.

“If we are successful in releasing the capital, it’s probably unlikely that we could grow into it,” he said. “There’s a very real opportunity for us to give it back to shareholders.”

The exact “capital relief” Investec can expect from hiving off its asset-management unit, which oversees about $160 billion, will depend on how much of a stake it retains in the business. The separate listing of the division, scheduled for March 13, will leave Investec with a private bank, a wealth manager, a unit providing business-banking services, and an investment-banking division.

Read more: Investec Asset Management’s Senior Staff Want to Boost Stake

Like all South African business sectors, the financial industry faces the challenge of a reduction in economic growth to a forecast 1.2% this year, a continuation of the longest downward cycle since 1945.

This means that selling the private-equity investments “in this market is tough,” Wainwright said. “In the medium term, we will reallocate capital away from that investment portfolio and into our franchise businesses as they grow.”

Expansion Drive
Investec’s expansion strategy relies on venturing deeper into its affluent client base with new business lines, such as life insurance, and offering banking services to mid-sized companies. Its private banking unit is adding customers quickly after lowering the credit criteria needed to qualify for an account, he said.

The idea to enter life insurance was initially rejected by Wainwright when it was first pitched, but could become one of Investec’s most important money spinners over the next five years, he said. The bank is also improving cross-collaboration between the South African and U.K. units and the wealth-management business, Wainwright said.

The CEO estimates that Investec’s private-banking unit can accelerate its client-growth rate at more than 10% from roughly 6% in the past decade with these plans in place.

“We are also expanding into new markets with our clients,” he said. “Our African strategy is to partner with local banks where we have expertise and skills. We share the risk and don’t compete, but rather work together.”

Shares Gain
Investec’s London-listed stock rose as much as 1.3%, reversing an earlier decline of as much as 2.4%. It’s shares in Johannesburg advanced as much as 2.5%, extending gains this year to 3%, compared with a 5.6% drop in the six-member FTSE/JSE Africa Banks Index. The stock returned 10.8% last year against a 0.2% return in the banking index and 12% for the 160-member all-share benchmark.

A focus on reducing costs has also seen the lender stop increasing headcount while being stricter on where it is allocating capital, Wainwright said.

“We are looking at how we can be more efficient through cost containment and digital enhancement, and as a result, manage our cost to income ratio better,” he said.

Source: Bloomberg Business News