Nedbank Third Quarter 2010 Tr
Ref 160/10
18 October 2010
Old Mutual plc
Nedbank Group Limited - Third Quarter 2010 Trading Update and Withdrawal of Cautionary
Nedbank Group Limited ("Nedbank Group"), the majority owned South African banking subsidiary of Old Mutual plc, released its third quarter trading update and withdrawal of cautionary today, 18 October 2010. The full announcement can be found on the company's website www.nedbank.co.za.
The following is the full text of Nedbank Group's announcement:
"THIRD QUARTER 2010 TRADING UPDATE AND WITHDRAWAL OF CAUTIONARY
'Whilst economic conditions have improved since 2009, the global recovery remains muted and uneven. South Africa's gross domestic product growth in the second half of 2010 is likely to be slower than in the first half. Against this background we are pleased that the group and bank remain well capitalised, liquid and solidly profitable at levels ahead of the prior period.
Nedbank Group has built a solid platform from which to grow and to service clients and our vision remains to build Africa's most admired bank by strategically focusing on areas with strong economic profit potential in South Africa and in the rest of Africa.
Nedbank Group has a clear strategy, a good track record, a fundamentally well positioned banking business and a strong management team to grow our business, and increase shareholder value as we deliver on our vision. We have recently completed our 2011-13 planning process and, given our current economic outlook, remain confident that we will meet all our medium- to long-term financial targets by 2013.'
Mike Brown
Chief Executive
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders were advised on 15 October 2010 that HSBC Holdings plc ("HSBC") ended talks on a proposal to submit a bid for a controlling interest in Nedbank Group.
Nedbank Group stated at the time of the initial cautionary announcement that the proposal may or may not lead to a bid by HSBC. Old Mutual plc ("Old Mutual") commented in their announcement on Friday 15 October 2010 that the reasons for HSBC's withdrawal were not disclosed to Old Mutual, but were not, as far as Old Mutual was aware, related to any adverse findings during HSBC's due diligence of Nedbank Group.
The HSBC proposal to Old Mutual represented an opportunity to accelerate the delivery of the group's vision and accordingly the board and management were disappointed when HSBC informed Old Mutual that they had decided to withdraw the proposal.
The cautionary announcement originally issued on 23 August 2010 and renewed on 30 September 2010 is accordingly withdrawn.Caution is no longer required to be exercised by shareholders when dealing in Nedbank Group securities.
OPERATING ENVIRONMENT
The global and domestic banking environment remains challenging for the banking industry and recent indicators from key industrialised countries suggest that the economic recovery is losing momentum. Global confidence levels remain fragile as business conditions continue to be impacted by the uncertainty associated with evolving banking regulations, risks emanating from high levels of public and private sector debt and weak property markets.
Locally, the economy gained some momentum in the first half of the year mainly driven by a revival in household spending brought about by higher household income, lower interest rates and the boost from the FIFA World Cup.
Household demand for credit edged up from a low base as a result of improved demand for asset-based finance. The decline in instalment sales and leasing finance moderated while mortgages showed weak but steady growth. Encouragingly, households increased debt repayment levels, resulting in the ratio of household debt to disposable income easing to 78,2% at the end of June 2010 from just over 80% at the end of 2009. Corporate demand for credit remains weak as underlying confidence is still low and businesses remain reluctant to expand operations too quickly in the current economic environment where there is still excess manufacturing capacity.
OPERATIONAL PERFORMANCE
Nedbank Group remains solidly profitable and well capitalised. The strategic focus on areas with strong economic profit potential is showing some early signs of success, particularly in the growth in core fee and commission income within non-interest revenue (NIR).
Net interest income (NII) at R12 214 million for the nine months ended September 2010 ("the period") was slightly up on the prior period (Q3 2009: R12 198 million). The net interest margin held up better than anticipated at 3,32% for the period (Q3 2009: 3,40%), compared to 3,34% for the six months ended June 2010. The benefit of increased margins on new advances and widening of asset margins due to a change in asset mix was largely offset by the negative endowment impact from falling interest rates on capital and the non-repricing of current and savings accounts and higher term funding costs as the group lengthened its funding book earlier this year.
Encouragingly, impairments have continued to slow, reflected in lower levels of early arrears and reduced inflows into defaulted advances in the retail portfolio. Consequently, the group's credit loss ratio has improved from 1,46% for the six months to June 2010 (Q3 2009: 1,52%) to 1,36% for the period. Although impairment levels have improved across most of the clusters, the group remains cautious given the sustained high levels of unemployment, personal indebtedness and tough operating conditions in the wholesale sector. During the period the adequacy of impairments (both current and forecast) in the retail home loan portfolio were reviewed by an independent global risk management consultancy firm. The results of this review confirmed that current provisioning is appropriate and that forecast provisioning for the medium term is in line with group planning assumptions.
NIR grew by 10,2% to R9 413 million (Q3 2009: R8 542 million). Core fee and commission income grew by 17,1% (13,2% growth including in 2009 the Wealth joint ventures acquired last year from Old Mutual). Growth resulted from increased volumes in electronic banking, cash handling, vehicle asset finance, personal loans and insurance related fee income. Trading income was flat as a result of low market volatility. Private equity income was impacted by lower market revaluations on certain investments and NIR was negatively impacted by R207 million over the period as a result of fair value adjustments from our subordinated debt unwinding as credit spreads narrowed.
Expenses remain in line with expectations and the guidance given in the 2010 interim results.
Total assets at 30 September 2010 increased by 10,0% (annualised) to R613,4 billion from December 2009. Advances grew by 10,1% (annualised) to R484,2 billion reflecting solid growth across most of the retail asset categories, with the exception of home loans where market share decreased marginally in line with the group's strategy of growing higher economic profit generative businesses. Credit appetite in the business sector remains subdued due to excess capacity and public sector spending momentum which has slowed, as expected, post the FIFA World Cup.
Optimising the group's funding and liquidity profile remains a key management focus, with particular emphasis on lengthening the liquidity duration of our funding profile. The long-term funding ratio improved to in excess of 24% as at 30 September 2010 (Q3 2009: 21,2%). Deposits increased 8,3% to R498,6 million (annualised) and long-term senior debt grew by 42,9% (annualised) to R26,5 billion during the period.
The group continues to be well capitalised with capital ratios well above current regulatory and anticipated Basel III requirements, as well as the group's own internal targets.
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August 2010 ratio * |
Internal |
Regulatory |
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Core Tier 1 ratio |
9,8% |
7,5% to 9,0% |
5,25% |
|
Tier 1 ratio |
11,4% |
8,5% to 10,0% |
7,00% |
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Total capital ratio |
14,6% |
11,5% to 13,0% |
9,75% |
* September 2010 capital adequacy ratios will be reported on when the group releases its Pillar III report in due course.
PROSPECTS
Activity in the corporate environment in South Africa is likely to remain muted for the balance of the year owing to uncertainty in global markets, whilst consumer confidence continues to be weighed down by job losses and a weak property market. Lower interest rates are expected to continue to benefit impairments, although it is likely to take some time before this translates into higher transaction volumes and asset growth. The prospect of further interest rate reductions, if they occur, could impact margins negatively in the short term but should benefit impairments over the longer term.
In this challenging environment the group remains focused on sustainable growth and continues to seek opportunities to unlock existing value while continuing to invest for long-term growth.
Nedbank Group's headline earnings for 2010 are expected to be between 6% and 14% higher than the 2009 year. The group's diluted headline earnings per share for 2010 are currently expected to be between 0% and 8% higher than the 983 cents per share reported for the year to December 2009.
Diluted earnings per share are currently expected to be between 5% and 13% lower than the 1 109 cents per share reported for the year to December 2009. Diluted earnings per share in 2009 contained a one off accounting benefit of R547million resulting from the purchase of the Wealth joint ventures acquired from Old Mutual in 2009. Earnings per share have been impacted by a higher than usual scrip take-up of 82% earlier this year. This created a higher base compared to diluted headline earnings per share as forecast for year end.
Shareholders are advised that these forecasts and the figures stated in this trading update have not been reviewed or reported on by the group's auditors.
FORWARD-LOOKING STATEMENT
This announcement contains certain forward-looking statements with respect to the financial condition and results of operations of Nedbank Group and its group companies, which by their nature involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, global, national and regional economic conditions, levels of securities markets, interest rates, credit or other risks of lending and investment activities, together with competitive and regulatory factors.
Sandton
18 October 2010"
Enquiries
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External Communications |
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Patrick Bowes |
UK |
+44 (0)20 7002 7440 |
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Investor Relations |
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Deward Serfontein |
SA |
+27 (0)82 810 5672 |
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Aleida White |
UK |
+44 (0)20 7002 7287 |
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Media |
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Don Hunter (Finsbury) |
UK |
+44 (0)20 7251 3801 |
Notes to Editors
Old Mutual
Old Mutual plc is an international long-term savings, protection and investment Group. Originating in South Africa in 1845, the Group provides life assurance, asset management, banking and general insurance in Europe, the Americas, Africa and Asia. Old Mutual plc is listed on the London Stock Exchange and the JSE, among others.
In the year ended 31 December 2009, the Group reported adjusted operating profit before tax of £1.2 billion (on an IFRS basis) and had £285 billion of funds under management at the year end. The Group has approximately 54,000 employees.
For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com
This information is provided by RNS
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