Sasfin Mercantile talks off

30 July 2010.

Summit TV speaks to Roland Sassoon chief executive officer of Sasfin Bank about why the talks with Mercantile Bank around a planned merger are off.

Giulietta Talevi: Welcome to Face to Face. Small banks Sasfin and Mercantile are no longer looking to link up following two months of talks. Roland, what happened?

Roland Sassoon: What happened is that we were approached a few months ago - we thought it was worth exploring so we entered into discussions with a view really to see whether there were any rationalisation benefits, and if by putting the two banks together we could both benefit from that. As we investigated this and as they investigated it we came to the conclusion that really the risks of putting these two banks together were really not worth taking for the rationalisation benefits. Their business is very different from our business. We have perhaps a different vision for the future so we decided really it was best for both parties to call it off. The problem of course is when you are a listed company as soon as you do have discussions you have to have a Sens announcement - and that tends to throw everybody into a bit of a tizz - but really there was nothing abnormal about this. It was just two small banks seeing if there was a possibility of a marriage that would have benefited both of us. There wasn’t so we called it off.

Giulietta Talevi: Perhaps you can talk about what the biggest difference is between yourselves and Mercantile? I think people thought it would have made quite an interesting deal at the time when you first announced you were talking about it two months ago...

Roland Sassoon: Our focus is very different. They’ve just spent a lot of money on a software system for transactional banking - and they are to a large extent a transaction bank, a retail transactional bank although they also do business banking but in a much smaller way than we do - we on the other hand are not a retail bank in any way. Those are perhaps the main differences. They’re also a subsidiary of a huge Portuguese government owned bank so I think there is perhaps a bit of a cultural difference between us. Those were the differences...

Giulietta Talevi: Often people get excited about mergers and it makes people in corporate finance a lot of money - but the cultural differences are quite hard to overcome - presumably you didn’t want to get into a situation where you’d merged with the company and things didn’t work out?

Roland Sassoon: Exactly. The risk of things not working out is huge - there’s risk as far as your staff are concerned, your business and you clients - it’s just really not worth putting all that at risk in any way...

Giulietta Talevi: Are you in any way interested in entering more transactional banking - was this one of the things that you thought might end up complementing Sasfin’s current business? Is it something that you want to get into in the future?

Roland Sassoon: Yes, it is. It’s definitely going to happen. I don’t know when because it’s a huge step to take. Obviously this would have fast tracked that. That was one of the appeals but we will go into it when we feel we are ready…

Giulietta Talevi: Were you also feeling that maybe Sasfin needs a couple more acquisitions to grow the scale of the business - is that a concern for you at the moment?

Roland Sassoon: Yes, the new raft of regulations that are coming downstream are quite onerous and the cost of compliance with those regulations is quite high. We both felt that by creating a bit of critical mass by joining together that would have made it more affordable - but it just so happens that the regulations that are coming down are being moderated quite a bit as you will know in terms of the discussions overseas. I think legislators around the world are being more reasonable and would have realised that hugely onerous legislation would impact whole economies because if the banks can’t lend the whole economy suffers so there’s also a sense of relief on both sides and that also reduces the necessity for a deal…

Giulietta Talevi: Can you maybe be a bit more specific about what aspects of the regulations exactly would hurt a bank like Sasfin? Is it holding more capital?

Roland Sassoon: As far as capital adequacy is concerned we have a very high capital adequacy - and so do they - so that wasn’t an issue at all. There’s all this stress testing and the liquidity cover ratios that was looking quite draconian at one stage. As I say that’s no longer the case so we are quite confident that we can handle all this new regulation without too much sweat but the cost of doing it is quite high.

Giulietta Talevi: I don’t think one really associates Sasfin with a lot of deal making and acquisitions - we’ve associated you more with organic growth over the last few years - but you have done a few deals haven’t you?

Roland Sassoon: Absolutely. The organic growth that we’ve really had has been in our business finance area because that’s how we started - we started off with trade, debtor and equipment finance - but we’ve since acquired other businesses for example Frankel Pollack that was a significant retail stockbroking business. That we acquired in the year 2000. With that we acquired corporate finance activity and financial planning and similar activities. Just after that we acquired a controlling stake in a private equity business MDM and just before that we’d acquired a controlling stake in Premier Freight so we’ve had a number of acquisitions. I’m pleased to say that each of our acquisitions has been a good acquisition - we haven’t had one negative corporate activity and we don’t want to have one because the risks as I say are quite high so when we see these risks are high we would rather just step away.

Giulietta Talevi: The trading environment in which you find yourselves along with all the other banks is pretty tough - I know you are in a closed period but did put out a trading statement a couple of weeks back, not a very encouraging statement and of course we had Absa coming out on Thursday night saying their headline earnings are going to fall - the markets I think have been a bit shocked by that so clearly things are still tough out there?

Roland Sassoon: They are but I think things are getting better. In terms of credit losses and non-performing loans things are definitely getting better and there is also more activity - there is definitely more interest - so we are quite encouraged by the future.

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