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Sell Standard Bank, says stockbroking subsidiary

SBG Securities flags concerns over personal and business banking.

SBG Securities, the stockbroking subsidiary of the Standard Bank Group, has issued a sell recommendation on its parent company.

In an equities research note sent to its professional and institutional clients this week, SBG Securities issued a sell recommendation on Standard Bank at a revised target price of R160 per share, up from R155 per share due to higher than expected full year earnings and a lower dividend cover.

For the financial year ended December 31 2016, the banking group reported a 4% increase in headline earnings and headline earnings per share to R23 billion and R14.140 respectively.

A poor performance by insurance arm Liberty Holding’s, which suffered a 46.2% decrease in headline earnings to R2.21 million, weighed on the group as headline earnings attributable to Liberty fell 61% to R955 million.

Following the results announcement, Moneyweb reported that the banking group had devised a “detailed action plan” to turn  Liberty around.

Read: Standard Bank prioritises Liberty turnaround

SBG Securities said the “noise around Liberty’s weak earnings performance has masked some troubling trends at Standard Bank”.

It went on to question whether Standard Bank was struggling to understand the needs of retail clients as growth in non-interest revenue (NIR) from Personal and Business Banking (PBB) in South Africa increased by 6% relative to an 11% increase in expenses.  

Citing a previous report, it said the interest rates offered on savings were kept low despite rising interest rates.

“PBB’s revenue growth has been flattered by endowment and keeping client deposit rates low… Were it not for the mortgage book, Personal Banking’s earnings would not have grown and this weakness is having an impact on the financial results,” the stock brokerage firm said.

The bank’s financial results show that PBB’s mortgage lending headline earnings grew by 20% to R2.97 billion.

SBG Securities also expressed concern around customer satisfaction. The latest South African Consumer Satisfaction Index shows Standard Bank’s score of 71.9 is the worst among the country’s five largest retail banks. It said it was disappointing that the bulk of the group’s capex spend, allocated to enhance PBB’s core banking capabilities, is not translating to better client experiences. “In our view, the South African retail banking environment is going to get tougher and Personal Banking SA seems to be struggling,” it said.

Read: Don’t bank on customer loyalty

According to the firm, the recovery in commodity prices should help to lift revenue at the bank’s Corporate and Investment Banking division. However, currency headwinds may weigh on earnings.

“We are concerned that revenue growth in FY17e will be muted, particularly on net interest income (NII), due to weak advances growth in FY16. On a constant currency basis, fee income growth was 9% – however, with currency headwinds this is likely to be slower – second half year-on-year growth was only 3%, including impacts of currency,” it said.

It said the group would need to look to Liberty’s earnings as well as “wild card” Industrial and Commercial Bank of China (ICBC) for growth in the 2017 financial year. It expects Liberty’s earnings to recover to R2.3 billion and Standard Bank’s share of the losses from ICBC to amount to $40 million.  

SBG Securities declined to comment on the report, saying that it was intended for professional market and institutional clients only.  

A disclaimer carried in the report states that securities discussed may “involve a high degree of risk or volatility and maybe intended for sale only to investors with an understanding and capacity to assume the risks involved”.  

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Where did the A players go?

The A Team went to the ‘C’ Bank!

I don’t know what your source is for your opinion, but I have no difficulty in believing it. To describe the line staff as serial incompetents would be putting it mildly.

SB lost my bond application documents SEVEN times when I was buying a property a couple of years ago. It eventually took a complaint on to wake them up. And when they finally got the docs, they took 21 days to approve the bond. Whereas for a property I bought in 2004, I had approval within two hours of my online application. So when I saw that customer satisfaction data a couple of weeks ago, I just thought “yeah, that’s about right…”

You’d have thought that in these days, a customer in good standing with no defaults since opening their account a decade earlier would be worth gold, but they treated me like a stranger, and this is just one example of many enormous screwups which have become routine since 2010 or so. (Honourable mention: branch staffer at Killarney couldn’t read a lease document properly, so she changed our business’s address to that of our landlord. I just about had to threaten murder to get that fixed, and it took 6 months).

It’s not a case of like in the old days where one could solve a problem by changing branches – everywhere you go, it’s just creaky systems and endemic incompetence. I’ve been progressively closing accounts with them as I can, and within 18 months, I’ll be gone, never to return.

The problem of course is that the service is no better at any of the other banks. At FNB the staff are more concerned about when they are taking their tea time and lunch than servicing clients. Training appears to be negligible and don’t ask them any question that be might outside their job description!

I think the work force in South Africa generally lacks PASSION and self-motivation in anything that they do. I have changed bank accounts, insurance etc you name it due to negligence and people not paying attention to do the most simple of tasks.

I have friends working at Std and they experience the exact opposite that was stated in the 1st comment.

For me Liberty was moving the goal post and moving assets to create another finance opportunity at the expense of the investors and were willing to allow policies to change to accommodate the deals. Seems like they missed the target.

Don’t they seem to bank on Sandton City all the time?
There are many new shopping malls since Sandton City was created.

I suspect Liberty is far worse than STBK.

The I.T Staff have been leaving in numbers for months now,
H.R response is if you want to leave then leave.
Not the answer you would expect from a good company right?

Also lot of the positions are now being occupied by foreigners.

No effort is made to renumerate the I.T staff members according to normal market rates, never mind upper market rates.

Some I.T Departments are already running on skeleton staff.

And then they wonder why the A team staff are mostly at the opposition.

The problem with banks these days is that they pay scant attention to training of staff, and all if they are trained are only trained on the final delivery. The staff are not interested as to how systems bolt together, and thus have no concept as to how the problem arose. Those staff who are customer facing have little knowledge of the products on offer nor the circumstances of the customers needs and so sell products because they have targets to meet. Never in 40 years in banking did I see an equitable rewards system, but staff will gladly tell you how hard they are working, which is nonsense. In the 80’s and early 90’s all banks had a work measurement system for standard processes based on time standards by an average person – wonder how many of them have these systems in place today – probably none.
There are a number of attributes/characteristics that are missing in bankers today:- broad/wide based knowledge, understanding, willingness to resolve a customer problem, acknowledging that they have a bank problem and not just another departments incompetence, empathy, acknowledging that their customer is king/queen to the organization, that the aggrieved customer should not be seen as a nuisance after all they pay the bankers salary. The other major issue I have with banks is the surreptitious manner in which they feed in new charges for some really obscure service which they supposedly provide – my bank has just instituted “facility fees” for having a limit on ones credit card – how disgusting is that – given that they frequently phone to find out whether they can’t increase the limit

I fully agree. When i was a bank manager i had in-house training on our products and the oppositions products and rates. I would at odd times go up to one staff member and ask question to see if they were up to date. Result was that in 2 years we doubled or clients.

True that banks are useless but SB go out of its way to make customer -me- of 20 years feel like a stranger/criminal.No concept of any personal relations and always impersonal numbers treatment. So my investments are with another bank who at least treats me like a person most of the time and even knows my face and name. Makes a huge difference.

this comes as no surprise to me-i am an old Std client and find the service gets continually worse. i get the feeling staff at standard are working against me as a client. in the latest incident when i took a badservice gripe to the complaints dept. apart from not answering me they somehow jammed up my computer

There is absolutely nothing wrong with SBG issuing a sell signal on Standard Bank. In theory there should be ‘Chinese walls’ between such divisions and it actually a credit to SBG that they have done this.

What Liberty does not realize is that it is the locals (yes South Africans) that are more likely to buy their policies and and investments and not the foreigners they are currently employing.
Foreigners take their money back overseas to their families.
The wheel turns?

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