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Investec’s profits hammered by weak rand

As market volatility knocks asset management earnings.
Investec CEO Stephen Koseff.

JOHANNESBURG – Investec Plc posted an expected 2.5% growth in statutory operating profits to £505.6 million (R10.7 billion) for the year to March 31, as a significantly weaker rand negatively impacted on the pounds sterling value of group results, despite reasonable profit growth across both its South Africa and UK businesses.

On a currency neutral basis, operating profits were up 13.5%.

“Group results have been negatively impacted by the 16.3% depreciation of the average rand: pounds sterling exchange rate over the period,” Investec said in a statement on Thursday.

Operating profits from ongoing operations increased 0.6% to £583.9 million (R12.3 billion), an increase of 9.9% on a currency neutral basis.

“These are a very solid set of results, given the economic challenges and volatility facing us in both of our key geographies,” Investec CEO Stephen Koseff told reporters via a media conference call.

Investec’s asset management division recorded a 9.5% drop in operating profit to £134.8 million (R2.9 billion), with earnings knocked by market and currency weakness.

Total funds under management in its asset management division amounted to £75.7 billion (R1.6 trillion), down from £77.5 billion in the prior period.

With roughly half the asset management funds managed in emerging markets, overall profitability was impacted when translating revenue from rands to pounds, Koseff said.

Benefiting from net inflows of £2.1 billion (R44.4 billion), wealth and investment operating profit increased by 8.8% to £85.7 million (R1.8 billion).

Investec’s specialist bank increased operating profit by 4.3% to £409.2 million (R8.7 billion). In South Africa, the specialist bank grew profits 12.7%, while in the UK profits jumped 20.9% on the prior year.

In South Africa, where it targets high-income individuals, Investec has “managed to thrive despite economic challenges” and risks of a credit ratings downgrade facing the country, Koseff said.

At a group level, impairments increased by 5.1% over the period, to £41.4 million (R875 million), lifting the credit loss charge to 0.26% (2015: 0.22%).

Third party assets under management decreased 2% to £121.7 billion (R2.6 trillion), an increase of 3.8% on a currency neutral basis.

Customer deposits grew 6.3% to £24 billion (R507 billion), an increase of 16.6% on a currency neutral basis, while core loans and advances increased 6.3% to £17.5 billion (R370 billion) – an increase of 17.3% on a currency neutral basis.

The South African specialist bank grew loans 19.7% to R218 billion.

On a group basis, net fee and commission income decreased by 2.9% to £1.1 billion (R23.3 billion), “largely as a result of lower fees earned in the UK corporate business following a strong prior year”, Investec said.

Net interest income increased by 6.1% to £571.9 million (R12.1 billion).

Commenting on Britain’s upcoming European Union (EU) referendum; municipal elections in South Africa in August; November’s presidential election in the United States; and Australia’s general election in July, Koseff said, “These are uncertain times, but we’ve built a resilient business and believe we have the capacity to grow and navigate these difficult times”.

A British exit of the Eurozone would be negative for London as a financial centre, he noted.

“We believe we will be able to navigate any kind of turmoil or disruption that is caused by any fall-out from the UK leaving the EU,” he said.

Investec’s multiple revenue streams position it well for upturns and defend it from volatility and “landmines in the road”, Koseff said.

*All GBP/ZAR exchange rates taken as at March 31 2016.

 

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Investec’s name appears on more than 24,000 documents in the Panama Papers. It refuses – point blank – to discuss the matter. No other South African bank has been as busy as Investec in the opaque world of tax havens, a world that is dreary, dodgy and features but few ambitions.

Methinks the ”dawn is neigh” for Investec!

My view on Investec:

Koseff Quote “Investec’s multiple revenue streams position it well for upturns and defend it from volatility and “landmines in the road”, Koseff said.
Which landmines are you referring to Koseff?

• Investec’s reputational loss (as extensively reported by Noseweek for a plethora of years now) that they suffered due to their cover-up of Kebble’s frauds which amounts to the most elaborate obfuscations in South African Corporate history. According to Noseweek 194 December 2014 Investec has profited to the tune of ZAR 2 billion-plus from the Kebblegate saga.

• The way in which Investec UK (they had constructive knowledge that this was stolen shares) entered into a ‘’script lending’’ agreement with JCI (which was no more than a collateralised loan), involving the theft of 5, 46 million Randgold Resources shares by JCI from Randgold (Noseweek 178 August 2014). ‘’If this were not enough, Investec retained ZAR 106 million of the cash raised from selling the stolen shares , to repay debt owed to Investec by Kebble personally. Poor Randgold received nothing from the stolen shares.

• The manner in which way Investec sold a naked hedge to Western Areas for 1, 8 million ounces of gold (with unlimited upside loss protection should the Gold price rise above approximately $ 300 – which it did!) and their modes operandi thereafter. No reputable bank in my mind and experience should sell such a structure…not even to the devil!

• Watcha gonna do when Goldfields come for you, as shareholder circulars issued with the blessing of the JSE –show that when NYSE and Johannesburg listed Gold Fields bought Western Areas, the details of the stolen money were totally suppressed! (Noseweek 199 May 2016)

Ok, I don’t mind if you don’t if you don’t want to publish my comment !Maybe just leave it…

Investec have been making the deadlines (Kebblegate Saga) for years now, for the wrong reasons!

End of comments.

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