A Mercantile Bank branch in Venezuela. Picture: Reuters
A Mercantile Bank branch in Venezuela. Picture: Reuters

It isn’t often that a bank comes on the market, especially one that seems to be in good shape. Usually, they become available in a financial crisis.

Mercantile Bank is in no such trouble.

It has provided R9.7bn in loans and has R9.3bn in deposits. The recently launched virtual banks, even Discovery Bank, might have to wait years to build up to Mercantile’s scale.

MD Karl Kumbier says 30% of the business comes from the Portuguese community, which supported the Bank of Lisbon before it merged with the original Mercantile in 1995. Mercantile was delisted and became a wholly owned subsidiary of Portuguese bank Caixa in 2012. But Kumbier says that as a condition of a loan from the European Central Bank Caixa was forced to reduce its international assets.

"The bank will keep its full service banks in Mozambique and Angola, but concluded that as a specialist bank outside the Portuguese-speaking world we were not core," says Kumbier.

Of the 18 bidders that Caixa adviser Deutsche Bank considered serious, four are finalists. They are an unusual quartet, with little in common: Nedbank, Capitec and two consortiums — the Public Investment Corp (PIC) and microlender and microinsurer Bayport Financial Services, and Grindrod Bank and Arise (a Dutch and Norwegian institutional fund focused on Africa).

Kumbier says Mercantile works exclusively with entrepreneurs. This might be a somewhat grandiose description of, in some cases, small shopkeepers. But at least it has clients that are operating going concerns and it is not in the microlending business.

The overwhelming majority of its loans are for business, few for consumption. And it shows in the numbers.

While Mercantile would not be the first bank to get into trouble soon after producing good results, it is coming off a strong base. Its net profit to December 31 2017 increased by 20% to R213m, after 21% and 15% growth in the previous two years.

The other attraction of Mercantile, Kumbier believes, is that it has 30,000 point-of-sale machines at merchants all around the country.

Kumbier says that under Caixa it was not to do acquisitions which held it back. An exception was when it bought a small rental finance business (which mainly leases office equipment), which it grew from a R30m to a R1bn book.

Another useful tool is its foreign-exchange licence. It has turned over US$3.5bn in this unit.

Kumbier says Mercantile has three tranches of clients — those with annual turnover up to R60m, R60m-R120m and R120m-R2bn. Beyond that size clients would fall beyond the bank’s circle of competence.

The PIC is the least transparent of the bidders.

Says Deon Botha, the PIC’s head of public affairs: "It is necessary to state that the sale of Mercantile Bank is a competitive process undertaken by the seller. Until a transaction is concluded, the PIC would not be in a position to publicly disclose the details about its role and participation in the process, including its strategy."

Bayport is a curious partner as it sells insurance and loans online to consumers, with limited knowledge of business banking. The only hope for this consortium is if the Portuguese government, which owns Caixa, gets comfort from selling to another state institution.

Nedbank is the only one of the big four banks to make it to the final round. And with a retail and business banking book of R295bn, Mercantile certainly counts as a "bolt-on".

Nedbank CEO Mike Brown says that, based on the summarised information pack, the bank decided to explore the potential opportunity. It found an alignment with the retail and business banking cluster. He says it is in the interests of shareholders to explore further.

To find some enthusiasm and passion for the bid, you have to turn to the other two bidders. Capitec was considered to be the frontrunner, as it put out a Sens announcement. But Kumbier says all four bidders will have an equal chance.

Capitec chief financial officer André du Plessis believes that the small to medium business sector is not well served, it is untransparent and fees are high. Mercantile would provide Capitec with critical mass in key areas such as point-of-sale devices.

"It could fast-track our move into business banking," he adds. "We just want to be sure we aren’t going to inherit someone else’s problems."

Much will depend on the conditions of purchase from the Reserve Bank, particularly on retrenchments, he adds.

The only bidder that would be truly transformed would be Grindrod Bank, which has less than half of Mercantile’s assets.

Grindrod Bank CEO David Polkinghorne says there is little overlap, and Grindrod would bring some useful assets into the mix such as its shareholding in index tracker CoreShares and in Bridge Fund Managers.

Mercantile does no wealth or asset management now, referring clients to Citadel.

Kumbier says the divorce from Caixa will not mean a Barclays-style dismantling of systems.

"We didn’t rely on Caixa for systems, which are homegrown."

The purchaser would not have to worry about doing wholesale branch closures. There are no conventional branches at Mercantile, just 12 business centres. There are 250 staff in the bank’s head office in Sandton and a further 250 around SA.

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