SIMON BROWN: I’m chatting now with Kokkie Kooyman, portfolio manager at Denker Capital. Kokkie, I appreciate the early morning. Two questions around this – one around bancassurance. But, before we get to that Standard Bank is getting a fairly good deal here in Liberty. It’s at a discount to group equity value as per directors’ valuation. As a business Liberty truthfully has straggled.
KOKKIE KOOYMAN: Yes. So Standard Bank is certainly getting a good price – as you say, the discount to embedded value and actually net asset value. But Liberty has been a poor performer. It has not been able to grow premiums over the last five years. Its embedded value growth has been very, very poor, even more so if you compare it to another turnaround, Momentum. But then obviously Sanlam has grown at I think 15% or so, and Liberty [at] 3%. So it’s been a dog. And I think it’s largely because of its trademark, its brand. It’s an old brand. Most of the client segment that it used to have, have emigrated or are retiring.
And Standard Bank since Liberty of course in Jacko Maree’s time, when they sent in Myles Ruck to turn it around, Liberty hasn’t been able to do it.
Okay. So Standard Bank might be buying a dog here. The shareholders are putting down more capital into something that Standard Bank has been trying to turn around for 10 years and not succeeding. Why should they succeed now? I suppose with having 100% control, and [Liberty] now directly reporting inside, you are going to really things up; the operation is going to be a challenge and so hence a good price.
SIMON BROWN: In essence, as you said, they’ll now be reporting, I imagine, directly to Sim Tshabalala, CEO at Standard Bank. I was pondering around Old Mutual getting rid of most of their last remaining Nedbank shares. Twenty years ago and even in the late nineties, all the talk was around this bancassurance, the tie-ups between banks and insurers. My sense is it hasn’t really worked as the banks had hoped it would, and this is maybe in a sense also Standard Bank’s last role of that dice. Can they be the local bank that really makes it work?
KOKKIE KOOYMAN: You are absolutely right. I well recall all conferences we used to go to: Fortis and ING, and everybody was claiming bancassurance as the new way. But two things have happened. One is obviously capital levels, and capital that you need to hold has increased a lot. So that broke up – the ING model and the others. And also more and more so, what do you do with your distribution channel? Do you offer your clients best of breed or a multiple number of insurers, or do you just tie yourself to one insurer which, in the case of Liberty, if it didn’t work, you still had to sell it because that was what you had – and now even more so.
So it is interesting having a distribution channel, and then having your own what they call ‘product factory’ in an insurer does bring along capital constraints. So it’s a lower RoE (return on equity) business. Banks these days want to try and increase the RoE because of the pressure on net interest margins. This is one of those where I think they had to do it, they probably tried to find a buyer and couldn’t, and they said, okay, we’re going to make the best of it because it’s not the ideal strategy to do bancassurance and tying down your distribution channel that you’ve built up through branches and everybody else.
The positives are they want to use it for their pan-African strategy; it’s very important. Liberty hasn’t really succeeded based on the profit contribution from Africa. So in that regard, it should help them. You’re going to mostly revitalise the brand and you get a wider client reach.
But it’s going to be hard work. And in fact, Standard Bank in a presentation said it’s going to cost them R650 million in the first two years to do this.
SIMON BROWN: I remember that bancassurance. In the early nineties, I banked with Nedbank. Old Mutual sold me a retirement annuity and Mutual & Federal sold me my short-term insurance. The idea was great, but I think customers have gotten smarter today.
Kokkie Kooyman from Denker Capital, I appreciate your early morning time, this morning.
Our poll is on our Twitter and our LinkedIn profiles. As you say, Standard Bank made an offer to buy those shares. The Liberty share price is where it was in 1994 – that’s after the jump of yesterday. Is this just Standard Bank delisting an underperforming business unit and being polite? Kokkie wasn’t quite as polite.
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