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FirstRand reports 23% fall in profit
2009/03/11 12:00:00 AM
FIRSTRAND gave a bleak outlook for the South African economy and its performance this year as it unveiled a 23% drop in half-year profits yesterday.
Faltering exports as the global economic crisis deepened would lead to more job losses and rising bad debts at banks, the group said.
“We are in the midst of the most difficult macro (economic) environment in living memory,” CEO Paul Harris said. “We can’t take lightly what is happening in the international environment.”
Harris said “things could get a lot worse” globally. He expected the second half of the financial year to be similar to the first half.
Harris’s forecasts for the remainder of the year were worse than predicted in a trading update in December, while reported profit was at the bottom end of the guidance it gave. The group’s share price fell 7%, before recovering to close just 0,1% higher as the JSE’s banks index rallied 6,3%.
While bad debts had risen sharply at its home loan and vehicle finance units, Harris expected a second wave of bad debts to hit the group’s corporate division. However, he said the group’s capital position remained strong. “We consider solvency and capital in this environment to be more important than profitability.”
Harris said FirstRand had “stress tested” its balance sheet and was comfortable it could withstand the worst possible scenario. The group was also applying the most stringent credit criteria.
He said the group’s diversified portfolio of businesses had paid off in the worst market conditions in living memory. It was now aligning these separate business units more closely to a central risk management framework.
“We recognise the severity of the crisis and we have repositioned our businesses accordingly.”
While FNB and WesBank had been adversely affected by the credit crisis and the downward turn in the banking cycle, Harris said Rand Merchant Bank (RMB) had been affected by the fallout in global markets.
Profit before tax at FNB’s South African operations fell 16% to R2,9bn, while WesBank’s pretax profit was down 72% at R168m. RMB’s pretax profit was down 20% at R1,9bn.
FNB Africa grew pretax profit 25% to R658m, while profit at short-term insurer OUTsurance rose 16% to R211m. Life assurer Momentum reported a 19% fall in normalised earnings to R740m as falling equity markets affected asset-based fees and more customers allowed their policies to lapse. However, Momentum said new business volumes were solid.
“They are not good results,” said Chris Gilmour, an analyst at Absa Investments.
“They are by far the worst of the banking sector results — 23% down is pretty shocking.”
He said he was particularly concerned with the performance of RMB and proprietary losses at that division, while Momentum had also disappointed.
While results from the home loans and WesBank divisions had been poor, Gilmour said this had been expected.
However, he said most analysts were bullish about FirstRand from a turnaround perspective. On a price: earnings ratio of just 6,2, he said its shares were cheap.
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