ANALYSIS: Not the best of times for Sasfin
The bank’s disappointing recent results may be turned around, with plans afoot to restructure and broaden its client base
It was just as well that Sasfin’s announcement that it was terminating KPMG as its auditor took place on the same day as the release of its annual results.
Its headline earnings for the year to June were down 16% to R194m, quite a contrast to the 29% growth in the previous year.
Sasfin is different from other banks in SA, with a market cap of just R1.6bn and family control by the Sassoons.
It still has the feel of a family business, it still knows virtually all of its clients by name, and one of CEO Roland Sassoon’s most cherished tasks is to feed the pet ducks.
Many say that Sasfin reminds them of Investec in the early days — except for the ducks. Today, Sasfin’s peer group includes specialist business banks such as Bidvest Bank, Grindrod Bank and Mercantile Bank.
It must have come as quite a shock when Sasfin experienced large losses from two clients, which increased the credit-loss ratio from 1.08% to 1.24%. The other factor was the 14% holding in the Efficient Group.
The most promising unit there is Boutique Collective Investments (BCI), which provides a platform for unit trusts that do not want to form their own management company to be hosted as "white labelled" funds on the BCI licence. Sassoon believes it’s a promising business, but the holding has to be marked to market, and the Efficient Group share has been volatile on the JSE.
Without the mark-to-market revaluation, Sasfin’s earnings would have been flat.
During the year, Sasfin disposed of the majority of its investment in Imperial Sasfin Logistics. This business was known for many years as Premier Freight.
It undoubtedly fits better into Mark Lamberti’s Imperial, with a logistics focus, than in a banking and wealth management group such as Sasfin.
Sasfin’s main upcoming acquisition is of Absa Technology Finance Solutions, increasing its presence in one of its core businesses: leasing business equipment.
Even though the bank is a small player, its basic metrics have been hit by the economy. Gross loans and advances were up just 4% to R6.7bn. But it has benefited from customers’ reluctance to invest in risky assets, and vanilla bank deposits increased by 40% to R4bn.
Sassoon says the transactional banking unit is showing reduced losses. It was always a weakness that Sasfin did not offer full-service transactional banking, but it can offer businesses some unique features, such as a direct feed into the Xero accounting programme. Sasfin has also beefed up its forex unit, an area in which it has long experience.
Business Banking still makes up 52% of group revenue, and transactional banking and treasury another 8%. The group would like Sasfin Wealth to become equally important, though it still accounts for just a fifth of revenue and earnings.
Sasfin Wealth, built off the Frankel Pollak private client chassis, is rolling out a suite of domestic and offshore unit trusts.
In addition to its star portfolio manager, David Shapiro, it has also recruited talent such as former Absa chief investment officer Errol Shear to run a new equity fund, and Absa Consultants’ Johan Gouws to run a new consultants and actuaries unit. Bruce Ackerman is another notable hire. Erol Zeki has just been appointed as CEO of Sasfin Wealth. He is a former CEO of FNB Securities.
Sasfin Wealth took the hit for the Efficient slump. But it increased unit trust fees and foreign income.
Executive director Michael Sassoon says a weak JSE, a stronger rand and the increased cost of investment in distribution, operational capability and technology all took their toll.
The third pillar of the group is Sasfin Capital, a mixed bag that includes corporate finance, private equity, property equity and an umbrella unit called commercial solutions, of which forex was recently its most promising component.
Sasfin sold assets worth R200m from its private equity book. It needs to decide if it wants to continue to manage these assets in-house.
The group hopes to announce a comprehensive restructuring before the end of the year, which will seal the fate of these units.
Sasfin still has a strong capital adequacy ratio of 16.4%. It will have the opportunity to broaden its client base once Wiphold has concluded its deal to buy 25.1% of the group. If nothing else, it should temper the group’s insularity.