Stock tripling shows why new FirstRand CEO won’t change tack

‘We can expect to see much of the same at FirstRand’ – analyst.
Johan Burger

FirstRand stock has more than tripled in five years, outpacing competitors among South Africa’s largest banks. That’s one reason for its new chief executive officer not to reinvent strategy when he takes over in October.

Changes Johan Burger, 56, may oversee at Africa’s largest lender by market value include a quicker expansion in Kenya and the development of the bank’s insurance business to complement FirstRand’s operating units, he said in a June 18 interview at Bloomberg’s Johannesburg offices.

Burger replaces Sizwe Nxasana, CEO since the start of 2010. In that time, FirstRand’s stock has climbed more than threefold, compared with a gain of more than 50 percent for biggest competitor Standard Ban. After 13 years as a FirstRand executive, Burger isn’t contemplating wide-reaching changes to a business approach he helped to mold.

“We can expect to see much of the same at FirstRand,” said Liam Hechter, a banks analyst at Anchor Capital in Johannesburg. Burger has had “an integral role in the success” of the Johannesburg-based company, he said.

Burger, deputy CEO since 2013 and the group’s head of operations and chief financial officer before that, joined FirstRand in 1987. In the interview, he said lower oil prices have increased the allure of Kenya, East Africa’s biggest economy.

Full service

“East Africa has always been an attractive market for us and has also been a beneficiary of the drop in the oil price,” Burger said. “Kenya is a market where we would look to build a full-service banking business: retail, commercial and corporate.”

The Kenyan economy is expected to expand 6.5% this year, according to the International Monetary Fund, which said growth will be driven by infrastructure spending and lower energy prices. The cost of Brent crude dropped almost 50% in 2014. Rand Merchant Bank, FirstRand’s investment banking unit, operates the group’s Kenyan representative office.

“Through the rep office, RMB has already developed a solid investment banking business,” Burger said. “We haven’t at this stage applied for a branch license. It is a priority for us, but nothing imminent.”

Burger said FirstRand wants to offer wealth and insurance products to customers through its existing businesses, complementing its investment banking, vehicle finance and consumer banking units, and tapping in to a market where it isn’t a leader.

‘Profit pools’

FirstRand unbundled its insurance and asset management assets to form MMI Holdings in 2010. It started asset manager Ashburton Investments in 2012 to supplement the group’s wealth services. This year, it acquired an insurance license and established FirstRand Insurance Holdings.

“In short-term insurance, asset management and long-term insurance there are profit pools where we don’t have a dominant position,” Burger said. “On the back of the insurance license, we are building our own insurance capabilities internally, which will support WesBank and First National Bank,” he said, referring to the vehicle finance and retail banking units.

WesBank and the Hollard Insurance Group said separately Monday that they will formalise their long-standing relationship by setting up a holding company providing motor insurance products. WesBank will be the majority shareholder of the company, which will sell vehicle repair and warranty and maintenance products.

“FirstRand’s management team led by Johan Burger will just continue to manage FirstRand on the same principles that have been so successful in the past,” Adrian Cloete, banks analyst at PSG Wealth in Cape Town, said by e-mail.

FirstRand rose 2.1% to R53.40 as of 3:32 pm in Johannesburg trading, giving the company a market value of about R300 billion ($24.5 billion), the biggest of any African bank.

©2015 Bloomberg News

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