Investec’s Fani Titi grapples with crises in its two largest markets — SA and UK
Fani Titi, who presided over his first full-year results as CEO of Investec, has his work cut out for him grappling with political and economic uncertainty in the bank’s two largest markets.
SA has yet to show signs of any meaningful economic recovery after a decade of stagnant growth and rampant corruption despite a change of leadership in the governing party at the end of 2017.
The UK is no nearer to settling its internal conflicts over Brexit, despite taking the decision to leave the EU almost three years ago. Theresa May is facing increasing pressure to quit as prime minister, setting the scene for more political drama that may further cloud the economic outlook.
Brexit has dented consumer confidence in the UK, and financial services companies face uncertainty about rules governing their ability to do businesses in the EU after Brexit.
Investec joint-CEO Fani Titi speaks to Business Day TV about pressures in the company's two main markets, SA and the UK, and what it means for Investec.
While SA resolved its political leadership issues with an election last week that gave a convincing mandate to the ANC and President Cyril Ramaphosa, the most recent data show that the economy probably shrank in the first quarter.
The limited avenues for growth in the two countries have put Investec in the unenviable position of having its costs rising faster than revenues. But the CEO is unfazed.
"Revenue growth and cost containment remain priorities for the year ahead. Our cost-to-income ratio remains within our target range, and specifically with reference to SA, we have a number of initiatives we think will contribute to revenue growth in the year ahead."
This includes Investec for Business, a comprehensive banking solution targeting the corporate mid-market segment, as well as a new private client initiative, Investec Life, which has introduced life insurance products to its niche of high net worth private clients.
Titi was speaking after the company reported basic earnings per share grew just 1.6% to 52p in the year to end-March. The dividend advanced just more than 2%.
A weaker rand against the pound was a drag on growth.
Titi is still technically co-CEO with Investec Asset Management chief Hendrik du Toit, but will singularly hold the reins
for the specialist bank and wealth & investment divisions after the money management unit, which Du Toit runs from London, separates. The asset management unit’s separation is on track for later in 2019, with a subsequent listing on the LSE.
Investec’s stake in the rebranded business will fall to low double digits. The specialist bank generated the bulk of the group’s operating profits in the 2019 financial year, accounting for 67% of the £664.5m generated in 2019. This represented an impressive year-on-year increase of 18%.
Titi has more flexibility with costs in the UK, where the bank’s smaller relative size in the market allowed it to grow core loans 8.5%. That was on the back of strong corporate client lending and private bank mortgage origination.
The British bank continued to enjoy the benefits of a sharply reducing impairment charge in 2019 as a result of the winding down of its legacy book, which consisted of a portfolio of subprime assets acquired shortly before the global financial crisis. The bank was forced to impair this book over a period of years after the financial crisis.
The reduction in the legacy book impairment, combined with accounting changes, reduced Investec’s impairment charge for 2019 by £82.1m.
This is equivalent to the entire operating profit generated by the wealth & investment division over the year.
As part of efforts to curb the drags on return on equity, Investec announced it would be terminating its Click and Invest initiative in the UK, which was intended to acquire clients at the lower end of its wealth & investment segment. "The take-up hasn’t been good," said Titi, "and we saw no market opportunity for it in the short term."