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Comparing bank stocks; Jacko Maree’s resignation: Kokkie Kooyman – head SIM Global

Prospects for a joint CEO structure, valuing different banks and Buffett’s latest newsletter.

HILTON TARRANT: Kokkie Kooyman is head of SIM Global. Kokkie, you’ve got a very good knowledge of the local banking sector, having worked as an analyst in the sector for many, many years – of late perhaps less so, given your increasingly global focus. But I’m guessing you still keep your eyes on the local banking sector, albeit sometimes from afar.
   The announcement yesterday – Jacko Maree retiring as chief executive of Standard Bank – what’s your take on that?

KOKKIE KOOYMAN: That’s a bit of a surprise, although I think it was coming in time. But Jacko has worked hard. He took on enormous pressure here in 2000 after the Nedcor aggressive takeout bid and when he took over from Mike Vosloo at a very young age – 43, 44 – and so I suppose he’s just tired. There’s been enormous pressure on bank executives and especially I think on a guy like him with 2008 and everything that brought with it. So it’s a fact that he’s got enormous experience, but the positive is he’s staying on as a senior banker within the group.

HILTON TARRANT: Just in terms of his replacement, Sim Tshabalala and Ben Kruger being appointed as joint chief executives, two of the three deputy CEOs who were elevated to that position – can they make that joint chief executive structure work?

KOKKIE KOOYMAN: Ja, that’s a tough call because you don’t see it often. In fact, I tried to think and there are one or two vague memories but I can’t recall where in banks it actually has worked well. An obvious example where it has worked is Stephen Koseff and Bernard Kantor, who have almost similar roles. But in the end it depends – if I use Bernard and Stephen there as an example – on the chemistry between the two. Those two really know each other, understand and trust each other. So it’s to the extent of how Ben and Sim get on.
     But where I know the two individuals, they are not guys strong on ego, very much team players and I think they should get on well. But the test will only be if there’s a big decision to be made where they differ.

HILTON TARRANT: Kokkie, just generally, given that all four banks have reported – and we don’t need to get into the figures in terms of comparison – when you look at a bank and value it against its peers, what would you look at?

KOKKIE KOOYMAN: Especially on a bank there are a couple of things to look at. The obvious one is to look at the return on capital that it generates, which shows its sufficiency. And then even more important the return on assets, because the return on equity to a certain extent shows the gearing.
   But then you’ve got to look at what are the bad debts, what are the reserves against the bad debts, and the cost-to-income ratio.
   But at the moment if you look at the big four South African banks then it’s interesting that Standard Bank now for the first time in many, many years trades at a discount. If you go one year out, and if my forecasts are correct, then it’s actually now the cheapest of the four banks on the price to NAV and actually even on a P/E basis.

HILTON TARRANT: Kokkie, just looking at the moves by these banks into Africa, obviously Standard Bank is perhaps the most aggressive of the big four. We’ve seen the Absa/Barclays deal voted on in recent weeks and that will go through. Nedbank’s forming the alliance with Ecobank, and FirstRand through FNB is mostly going at it alone. I’m guessing the battle ground now moves north of us.

KOKKIE KOOYMAN: Ja, indeed. If you look, going forward for a few years potentially for assets the growth rate is going to be sub-par, and very much so when you compare it to what’s available in Africa. But Africa is tough – ask Jacko Maree. It’s a very tough battlefield and it’s not like India, where you’ve got one country with a billion people. In Africa you’ve got north of 50 different countries, different regulators, different currencies with the same number of people, more or less. So Standard Bank has learnt the lessons and has obviously the most developed network in most of the countries. So that must put them ahead of the game.
   Absa benefits from obviously taking over Barclays operations that have been very well run. But still they have to integrate the two different systems.
   Nedbank’s totally different, because it’s the joint venture with Ecobank. But you are dependent on other people and other management, so you don’t necessarily have the expertise to go in and rescue things when they go wrong.
   And then FirstRand are still building very much from the ground up.
   But I think you are right in that the bank that succeeds in growing the African franchise the most over the next five years will be the bank that is most rewarded in terms of share price.

HILTON TARRANT: Kokkie, just to shift focus completely, you did cover Warren Buffett and the significant stake he bought in Heinz in your monthly investment letter. In terms of his annual letter to investors that he released this past weekend as chairperson of Berkshire Hathaway, what stood out for you in that letter?

KOKKIE KOOYMAN: Ja, I haven’t read it in detail yet. I normally keep the detail for just a week before I go – then it’s fresh in my mind when I sit and listen. But the interesting commentary he’s made is on the dividend story as well, that he’s always believed that it’s better not to pay a dividend, simply because of the tax leakage as now in South Africa as well, where we’ve got an amount of the dividend that goes to the Receiver of Revenue. He’s always believed that we can generate earnings for investors better than they can. Now [laughs] that’s not a statement that many others can make. We ourselves, and most academic research, show that it’s much better when managements pay out dividends. And companies that pay out good dividends generally are rewarded with higher ratings because the alternative is return on ego, where managements want to grow the business. But I think that’s the one that just came through in that he’s saying that for a while he’ll still continue rather investing the dividend for investors.

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