Sasfin ditches KPMG after 18 years on Gupta fallout
Sasfin CEO Roland Sassoon says 'the Gupta story' is a key factor in its decision
Sasfin Bank and recently listed Hulisani are the latest businesses to jettison KPMG over the work it did for the Gupta family.
Sasfin plans to put its audit out to tender in November, after switching to Deloitte as its new independent sponsor on Tuesday. Hulisani, a special-purpose acquisition company, plans to replace KPMG with PwC at next month’s annual general meeting.
Sasfin CEO Roland Sassoon said “the Gupta story” had been a key factor in its decision. “There’s this dark cloud over KPMG and we don’t want to pass judgment, so we’ll see how the dust settles.”
It is another blow for the auditing firm, which had audited Sasfin’s accounts for the last 18 years. KPMG has also been fired by Sygnia and talk is that Investec and Old Mutual are considering their relationship with the firm, after leaked e-mails exposed how it had aided the Gupta family in dubious financial transactions
Sasfin said its decision to cut KPMG as sponsor was taken a while ago. “It was felt by our audit committee that it was unhealthy to have KPMG as auditor as well as sponsor.”
Sasfin had a tough year of its own. Headline earnings to end-June slid 16.34% to 611.7c — mainly due to two “unusual” credit losses that pushed up its credit-loss ratio to 1.24%, and a mark-to-market revision of last year’s investment in separately listed Efficient Group, which swung from a profit of R13.6m to a loss of R9m. Lending growth was unsurprisingly sluggish at 4.06% higher, while operating costs grew 9.12%.
Sassoon said Efficient “is doing quite well so why their share price has tanked I don’t know. I’m not happy that we’ve taken this loss but bear in mind that is to a large extent a reversal of profit.” Efficient tied in well with Sasfin’s wealth division. “They’ve got a business that does all white labelling of funds so we felt there was quite a natural fit.”
But, “they are under cautionary, so something’s happening and we are not privy to that information, it kind of sidelines us so we are waiting to see the outcome of those negotiations. If negotiations fail then collaboration is back on the table.”
As for its credit losses, Sassoon said “we believe we were a bit negligent and we’ve upgraded our credit team and brought in a very senior person, as a result of this.” Despite his decades at the bank he founded, Sassoon said, “you never stop learning in credit, there’s always going to be a new trick”.
Sasfin remains resolute on building up transactional banking for its business and wealth customers, notwithstanding the threat of greater competition that Discovery’s imminent arrival heralds.
“This is the last piece in the jigsaw puzzle. I don’t like other banks breathing down our clients’ necks, so we have to do transactional banking. We are absolutely certain it was the right move. We’ve also got this deal with Xero. They’re a very big fintech company and the way it works is it provides customers with a full-on bookkeeping system integrated into bank accounts,” Sassoon said.
Sasfin would offer debit cards and introduce “some form” of term loan. “We think within a year or two we’ll be breaking even.”
Sasfin’s cost-to-income ratio rose to 72.12%, but the bank said excluding Efficient and its credit losses its cost-to-income ratio would have been lower than the previous year’s 68.9%.
While Sasfin’s assets have doubled over five years, Sassoon said, the banks needed “to keep growing assets at a hell of a pace to keep up with the cost of regulations. If we carry on like this we’ll start to see the benefits. There’s no reason why asset growth shouldn’t continue.”