Nedbank writes down Ecobank stake
Nedbank announced that it had booked a $293 million write-down on the value of its stake in sub-Saharan lender Ecobank in a 2016 results presentation in Sandton on Tuesday. The bank also registered its slowest growth in annual profit in seven years.
In 2014, Nedbank bought a stake of around 20% for $500 million in Ecobank Transnational, which has operations in more than 30 West African countries. The region has been hit hard by a slump in commodity prices and currency volatility, especially in Nigeria. Africa's largest economy is experiencing its first recession in 25 years on the back of an oil price slide in the middle of 2014.
However, despite a gloomy outlook for Ecobank in 2017, Nedbank CEO Mike Brown said the asset remained a vital cog in the bank's African expansion plans.
"It's obvious that we would be disappointed with the performance of our Ecobank investment to date. But we still, however, remain optimistic on the long-term growth prospects in the rest of Africa." Brown said.
It was a difficult pill to swallow for Nedbank, who had been confident that the fundamental value of thinly-traded Ecobank stock was solid in the latter part of 2016. CFO Raisibe Morathi (pictured), a CFO Awards 2017 nominee, told Moneyweb in August: "The losses are definitely behind us. The fourth quarter was a deep dive into earnings; subsequent quarters have shown improvements and profitability."
In February, Ecobank said it hoped to slash costs by more than 15% by adopting a digital banking model in all the 36 African countries that it has operations.
Elsewhere, the outlook was brighter, with the Ecobank loss offset by "excellent managed operations outside South Africa", resulting in a R374 million headline loss being cut to R287 million.
"Nedbank delivered a solid performance in 2016, with excellent growth from our managed operations offsetting an attributable loss from our associate ETI. Excluding ETI, headline earnings from our managed operations grew 16,2% and ROE, excluding goodwill, was 18,1%, driven by strong revenue generation and good credit risk management," explained Brown. Its diluted headline earnings per share rose 4,8% to 2 350 cents in 2016.
As has become a custom since former CFO Brown took the reins as CEO in June 2004, the Harvard-educated business leader spent part of the presentation emphasising Nedbank's social contribution to nation-building in South Africa. He said the bank was acutely aware of its role in society and obligation to stakeholders. It had made key contributions to economic growth, job creation and transformation by employing an almost 80%-black workforce and creating 4 000 new jobs since 2010. The bank saw itself as a "custodian of savings in South Africa" and a material funder of infrastructure projects on the continent.
Nedbank's parent company, Anglo-South African conglomerate Old Mutual, is currently in the process of separating into four constituencies and plans to cut its 54% stake in Nedbank to a minority holding.