business banking, debtor finance, financing entrepreneurship, enhancing cash flow, plant and machinery finance, mergers and acquisitions, company buy-out, company buy-in, investment banking, development capital, Altx listings, money markets, office equipment rentals, international trade, finance solutions, BEE funding, call deposits, notice deposits, fixed deposits, negotiable certificates of deposit, creating wealth, preserving wealth, investment and asset consulting, regulation 28 compliance, Altx listing; basic finance, cash flow finance, finance debtor, credit finance, equity finance, finance banking, financing debtors, loan finance, working capital finance, money finance, turnover finance, equity loans, finance loans, loan companies, loan deals, loan rates, small business loans, small business loan, non debt funding, debt finance, debt funding, equity funding, funding for shares, investment funding, jse listing, jse listings, jse sponsor, designated advisor, capital raising, investment banking

Sasfin results

Summit TV speaks to Roland Sassoon chief executive of Sasfin about their results that saw earnings down 32% and the outlook for the banking sector

David Williams: Welcome to Face to Face. We are talking to Roland Sassoon chief executive of Sasfin one of the more interesting South African banks and a particular niche player that historically has done very well but hasn’t done as well as last year this time. Roland, looking at headline earnings the big number was R48million or 27% down on the same period in 2008 looking from 2009 headline earnings a bigger decrease of 32% year-on-year - what’s the context of these numbers?

Roland Sassoon: It was a difficult year. The other banks have also experienced a similar thing. What’s happened is there’s been less demand and the quality of the debtors deteriorated unfortunately and our overheads have gone up. One of the reasons that our overheads have gone up is because we’ve geared ourselves for growth. It’s been a very important year for us - the company is now well positioned for growth. We also increased our capital through the issue of shares to the International Finance Corporation (IFC) which is part of the World Bank - that was also a good move, and that also positions us well for growth going forward.

David Williams: Let’s look at that IFC deal - what was the motivation for that? Can you go into a bit more detail about how it was constructed and what the benefits are?

Roland Sassoon: We took a view that we would require additional capital - even though our capital adequacy is very high, and in fact it may even be the highest in the banking sector - but with the drama we’ve seen over the last couple of years post the Lehman Brothers collapse we thought it would be a good thing to have an additional war chest so we’ve built up our capital and positioned ourselves well for growth going forward.

David Williams: Is this the equivalent of a company in the retail or construction sector say that has low debt and has built up cash reserves and is looking for acquisitions and to gain market share?

Roland Sassoon: We are certainly looking to gain market share - if the right acquisition comes our way we will take it - but we believe that in this market we can get additional market share and we believe we in fact are starting to get bigger market share...

David Williams: Looking at the prospects for the next couple of years as a banker you must have watched with enormous interest what’s been happening. The South African banks it’s generally agreed have come out of this well - they are all still profitable although some of their earnings might have been down - where are the banks now and more broadly the South African banking sector?

Roland Sassoon: The whole banking sector worldwide is now faced with additional regulation. We are not quite sure what form that regulation is going to take - but we all know that we are in for more regulation. We can see that Barack Obama and others are frowning upon private equity, we can see that the use of securitisation is also an issue because of course the markets froze up a couple of years ago, and we can see that banks are going to be required to have a bigger capital adequacy. Proprietary investment is also something that’s perhaps frowned upon so the banks are going to be forced to be more cautious - more prudent in the way they behave in terms of both capital adequacy and their activities…

David Williams: Our banks though have been prudent in any case…

Roland Sassoon: Yes, I know. We follow Basel - South Africa was one of the first countries to be part of Basel II - and Basel is now reconsidering what’s going to happen and that’s a worldwide impact. You are right - South Africa has been particularly strong - but we will nevertheless follow the rest of the world.

David Williams: Is more regulation required, or is it the simple application of good principles in the first place? One thinks of the sub-prime issue - was the problem there that the relationship between the borrower and the lender was broken, so I lend you money and then the debt is sold off to someone else so I don’t actually care? If I know that before I lend you the money I won’t take the risk…

Roland Sassoon: That is a big factor. In fact the banks never saw the customer either -because the debts were originated by originators who then sold the deals to the banks. They then packaged the deals and sold them onto somebody else - it became very impersonal and nobody really knew who the debtor was or really understood the debtor so that was a big factor.

David Williams: That is common sense in banking terms as opposed to needing new regulation…

Roland Sassoon: Yes, and of course there was reliance on derivatives that also confused the issue - and then the ratings agencies got confused. The whole thing got very confused. It’s been a huge wake up call for the world - they can’t allow this to happen again. We can’t have the governments bailing out these huge banks. Therefore particularly when it comes to big banks they are really a threat to any economy so this is a very topical issue now. I just hope that there is going to be a two-tier structure because the small banks don’t pose a threat to anybody…

David Williams: It also makes you more flexible for opportunities - you state your particular niche as the entrepreneurial market - what does that mean in South Africa, and what is happening to entrepreneurs in times like this?

Roland Sassoon: In times like this entrepreneurs have taken a huge beating and you can actually see that in our numbers - unfortunately our credit losses have increased to a level that we are not very comfortable with, and we need to get that level down and we will get it down. We have traditionally been at around the 1% level - that’s now spiked up during this last six-month period, but I’m pleased to see that in fact things are looking better. We can see stability starting to creep back into that market and I’m sure that the credit losses will start to go down back to where they were. The entrepreneur has taken a huge beating because he doesn’t have the resources to really withstand this kind of knock - particularly in our case the importers and exporters. The whole thing got into turmoil but as I say the stability is starting to creep back and we are now seeing our clients starting to restock and go for growth…

David Williams: There are many indicators coming out now which suggests that the recovery has started also that the momentum is quicker than was expected so the recovery may happen sooner than we thought - manufacturing, car sales and house prices the data is coming through - are you seeing similar evidence?

Roland Sassoon: Yes, what’s also happening worldwide is America is looking better, Europe is not looking so good and certain parts of Europe are looking particularly bad, but the Far East is looking strong and South Africa is probably somewhere in the middle…

David Williams: What about the consumer? Everyone says the catch is the battered consumer and spending is not going to recover for a long time...

Roland Sassoon: Correct. The consumer still has huge debt because too much debt was actually thrown at the consumer…

David Williams: Did you give too much debt from Sasfin?

Roland Sassoon: We don’t lend to the consumer. That’s not our market…

David Williams: But in your lending?

Roland Sassoon: No, I don’t think we did. Certainly some of our clients have been hurt - unfortunately that then impacts on us so that did happen. I can’t say that we over-lent. We’ve always had a high capital adequacy and our lending has always been relatively low.

David Williams: The prospects for the year ahead? You’ve had a drop here so where do you expect to be?

Roland Sassoon: We’ve spent a lot of money on infrastructure development - we’ve spent a lot of money on IT, we’ve gone into new premises and we’ve recruited top management - all this costs money and until such time our book increases that will obviously hurt our bottom line. This is what’s happened in the last six-month period and that’s going to happen to a lesser extent in the next six months and hopefully from there on we will see very strong growth.

www.summit.co.za