Investec banks on client base
New CEO Fani Titi says he is not interested in changing the culture at SA’s leading private banker
Investec’s new CEO, Fani Titi, is banking on the group’s "high-quality" clients to sail through the turbulent political climate and weak economic growth in SA, which dampened its financial performance locally. Investec posted a 5% increase in operating profits of its Southern African operations in the six months to September. In contrast, the UK and other regions (Switzerland, Republic of Ireland and Guernsey) posted a 40.2% increase in operating profit.
Though Investec has an established presence in these other markets, SA, which contributes more than half of its profits, remains an important market for the group.
Notwithstanding low activity in its biggest business in SA, the specialist banking division, Titi says Investec’s client base allows it to be more resilient than ordinary banks.
"We bank the high end of the market. We pick our clients properly. We understand their needs. They are not vanilla," he says.
The financial services group has three operating divisions: specialist banking, asset management, and wealth and investment. Specialist banking is Investec’s biggest division, contributing about 64% of the group’s gross operating profit at the end of September.
But in SA, it struggled with low lending and trading activities, while client investment flows were also lower than usual.
The division houses the private banking unit, an area in which Investec is recognised as the leader year after year. But competition in the private wealth and private banking space in SA is tight — all the major banks now have their own private wealth and private banking offerings. Investec has 100,000 private banking clients, primarily professionals. But there’s also a growing share of entrepreneurs, says Titi.
While the bank’s typical private banking client earns much more, Investec has decreased the minimum annual income to R600,000 to attract more new clients.
The private banking operations have received a lot of attention from the group, with significant investments made to improve digital platforms in SA and the UK. Increasing its private banking client base has allowed Investec to up-sell its wealth products to the more traditional private banking client, and the "high-tech-high-touch" strategy the group is pushing now is likely to yield more success on that front.
Investec has always maintained that it does not seek to be "all things to all people", and even though competition is intensifying, Titi is not looking to change the culture set by Stephen Koseff and Bernard Kantor over 40 years.
"There is no need for any radical changes. We’ll continue focusing on our clients and their needs and when the environment improves, we will do better. It’s the same business with the same set of values and we have the support of the founders."
Titi says even if the competition becomes stiffer, Investec should continue dominating the high end of the private banking market.
"We have a strong market share and we provide bespoke solutions. Where there is a lot more competition is at the lower end of the private banking market. And even at that level, we continue to refine our offering."
Outside SA, Investec is close to completing the investment phase of its private bank operations. The bank is already recording good growth in mortgage lending activity in other markets. The specialist banking unit outside SA almost doubled its contribution to operating profits in the six months to September.
The investment in its digital platforms has, however, come at a high price.
At 66%, the group’s cost-to-income ratio is considerably higher than that of its peers: Rand Merchant Bank (52.4%), Standard Bank (57.1%) and Nedbank (53%).
But it should comfort investors that revenue is beginning to grow faster than costs. In the period under review, revenue grew by 7.6% while costs were up 7.2%.
"Our focus now is to maintain cost discipline, grow revenue and continue to sharpen our capital allocation," says Titi.
While moderate profit growth in the company’s core market might make other new CEOs uneasy, Titi sees a silver lining in the new composition of Investec’s operating profit.
"We are not unhappy with the fact that businesses outside SA have contributed more this year. We’ve always sought to diversify our business from a geographical point of view. We feel that the balance is OK," he said after his maiden financial results on Monday.
Profit from non-SA regions has improved from 35% to 43% of Investec’s total profit.