Koseff takes Discovery Bank’s entry seriously
Investec CEO Stephen Koseff is not taking lightly the expected entry of Discovery Bank into the market in 2018, but true to his can-do attitude, Koseff welcomed the competition as a forcing mechanism to make Investec better.
"They’re very clever people. I’m not going to underestimate them," Koseff said of Discovery on Thursday.
"They’ll find banking a bit more competitive than insurance was when they came in."
Discovery’s entrance into banking comes at a time when banks are actively disrupting themselves through partnerships with fintechs and massive IT investments.
In a recent global ranking of mobile apps for wealth management by independent research firm MyPrivateBanking, three South African banks featured in the top 10. Investec came second, tying with BNP Paribas and trailing marginally behind Credit Suisse and UBS, which tied for first place.
Notwithstanding its strong position in the high net worth market, Investec knew exactly who of its clients were Discovery policyholders, Koseff said. "We’re high-tech, high touch. I’m sure they’ll be very clever and come with a very fancy product. We may need to adapt one or two things, we’ll have to see. We don’t know what they’re coming with."
Last week, Investec unveiled a comprehensive life insurance offering for its private bank customers, Investec Life. This was not a response to Discovery Bank but a value-add to customers, Koseff said.
Independent analyst Chris Gilmour said Investec’s impeccable client service was likely to be its "saving grace" when it came to Discovery Bank.
Echoing these sentiments, analyst at Avior Capital Markets Harry Botha said Investec’s customers received a highly personalised service from the bank and were unlikely to rush off to Discovery, which would launch a relatively generic banking product to start.
Demonstrating the resilience of its chosen niche, Investec’s specialist bank in SA reported a 21.6% increase in operating profit to £165.3m (R3bn) for the six months to September.
This was supported by growth in customer numbers and a strong performance from its corporate advisory business.
Notwithstanding weak economic growth, loans grew 6.5% to R251.5bn. Its UK specialist bank, on the other hand, reported a 22.1% decline in profit, off a high base in the previous period and a £12.4m (R225.4m) investment into building its private-client banking offering in that market. The loan book grew 4.1% to £8.5bn (R154.5bn).
The UK private bank would target customers "a notch up" from those targeted in SA, Koseff said. "We can’t really compete at the young professional level. It’s very product driven as opposed to client driven," he said.
In SA, Investec offers bank accounts to trainee accountants and doctors, with a view to their future earnings potential. It would take about four years from March 2018 for the UK private bank to start delivering profit, Koseff said.
Underlying trends in Investec’s business were positive, with strong loan growth in its specialist bank and positive net client inflows into its asset management and wealth units, Botha said.
These units posted net client inflows of £3.6bn during the period, about £1.3bn of which came from the Americas, mostly from investment managers.
Investec Asset Management would focus on large markets such as North America, where about 50% of the world’s savings resided, Koseff said.
It was not interested in launching a bank or wealth manager in the US. The wealth market was brokerage and commission driven. "We can’t attract the best people [in the US wealth management market]; they’ll go to Goldmans, Morgan Stanley, JPMorgan. So we get the ‘D’ team," he said, referring to Wolf of Wall Street types.
Despite beating earnings estimates, Investec plc’s share price closed 1.95% weaker at R93.98 on Thursday. A majority of analysts rate the stock a buy, according to Bloomberg data, with a 12-month consensus target price of R113.42.