Big four banks buffeted by a year of political storms
It has been an eventful year for SA’s four largest banks, with the dismissal of a finance minister, subsequent downgrades of government debt, some corporate activity, a lengthy court challenge, and changes in management all affecting performance.
Pravin Gordhan’s dismissal in March, to have him replaced with the inept Malusi Gigaba, sent banking shares spiralling downwards just after most had reported strong full-year results for 2016 (FirstRand, which has a June year-end, was due to report its performance for the six months to December).
Barclays Africa, Nedbank and Standard Bank published results weeks before the downgrade, showing growth between 4% and 6% for the year, despite a slowdown in the economy.
As banking shares rallied on the news, heading for levels last seen before finance minister Nhlanhla Nene was "recalled", President Jacob Zuma again sent them spiralling down with another change at the Treasury. The Banking Association SA (Basa) objected in the strongest way it could – publicly criticising Zuma.
"The president’s actions directly undermine the significant progress made in the last 18 months towards building confidence in our country," Basa MD Cas Coovadia said.
He warned that the reshuffle placed SA at risk of any fallout following from a potential ratings downgrade. Indeed, a downgrade to junk followed.
Ratings agencies S&P and Fitch cut the government’s foreign currency debt to junk, following with downgrades across the banking sector, in line with policies that do not allow for a higher credit rating than those of the government.
Banking stocks reeled.
At Barclays Africa, the overhang caused by Barclays’ publicly announced intention to sell its large majority interest in the group – with the market unsure whether this would all go to one buyer, or a number of buyers – placed further pressure on the share.
Barclays killed this speculation in May, when it conducted the largest bookbuild in South African history, selling 34% of its shares and raising R37.7bn. By August, fed-up banking executives were openly speaking out against economic mismanagement for the first time in recent memory.
Nedbank CEO Mike Brown said the cabinet reshuffle snubbed the work done by business, the government and labour in a bid to avoid downgrades.
At FirstRand — which has made an audacious R20bn bid for UK bank Aldermore — outgoing chairman Laurie Dippenaar said firms implicated in state capture would lose the bank’s business.
But early in November, banking shares started hitting new heights as the markets priced in a Cyril Ramaphosa victory at this week’s ANC elective conference. "With the initial euphoria having begun to fade, many investors will now undoubtedly be asking themselves whether this overnight shift in market sentiment is indeed warranted, or whether market participants could perhaps be getting ahead of themselves," said Steven Schultz, head of investment marketing at Momentum Investments.