09 March, 2013

South Africa Bank Mergers & Acquisitions (Nedbank Group)

Photo: Nedbank Group Ltd.'s headquarters complex in Johannesburg.

With special thanks to my friend Marius Neethling, who took and gave me permission to use this photo.  Dankje!

Nedbank Group Ltd.

Nedbank Group is one of South Africa’s Big Four banks and gained prominence particularly in the early 2000s when it took over the BoE banking group. Nedbank’s direct lineage goes back to the 1888 establishment of the Nederlandsche Bank en Credietvereeniging voor Zuid-Afrika (NBCV) in Amsterdam, Holland. The bank’s name means “Dutch Bank and Credit Society for South Africa.”

The final decade of the 19th century was a turbulent one in South Africa, as the Second Boer War was fought by the British Empire against the Dutch, Germanic and French settlers of the Orange Free State and the Transvaal Republic between 1899 and 1902. Even though Britain won the bloody and deadly war in the end, the military campaign was very controversial towards the end, with many criticizing the brutal tactics of the British forces. Following Britain’s victory, the two Boer republics became British colonies. In 1903, NBCV dropped the Credietvereeniging part of its long name and became known as Nederlandsche Bank voor Zuid-Afrika (NBZA).

In 1910, the Union of South Africa was formed by the confederation of four British colonies: Cape of Good Hope, Orange River, Transvaal and Natal. When World War I broke out in 1914, South Africa was drawn into the European conflict with clashing ideologies. As part of the British Empire, the government supported Britain’s position against Germany and thus sent troops to attack the German Protectorate of South-West Africa (present-day Namibia). Yet many Afrikaners descended from the Dutch and Germanic settlers felt no hostility towards Germany. If anything, it’s the Afrikaners who suffered greatly under British hands during the two Boer Wars at the turn of the century. Supporters of the creation of a Boer South African Republic led a revolt known as the Maritz Rebellion against the British-led Union of South Africa. The rebellion was quickly suppressed, however, and South Africa successfully conquered South-West Africa in 1915 from Germany.

In 1925, the Nederlandsche Bank voor Zuid-Afrika took over the Transvaalsche Bank en Handelsvereeniging (“Transvaal Bank and Commerce Society”), which was founded in 1892. At the onset of World War II, the “anti-British, pro-Afrikaner” National Party opposed joining Britain to declare war on Nazi Germany, preferring to keep the country neutral. Those anti-British sentiments quickly dissipated, however, and South Africa joined the Allies forces against the Axis enemies.

By the end of the deadly and lengthy war, South Africa’s economic and political development had reached a point where having the NBZA being registered and controlled in the Netherlands no longer made sense. In 1951, NBZA Anglicized its name to the Netherlands Bank of South Africa (NBSA) and was re-registered in South Africa as a local banking company. The choice of name reflected the bank’s desire to become more local, but not to let go too much of its Dutch and white-dominated heritage.

In 1964, the computer age arrived when NBSA installed South Africa’s first computerized banking record system. Through a licensing agreement with American Express, the bank introduced the American Express Gold card in South Africa in 1969. In the same year, all remaining shareholding of NBSA was finally transferred to South Africa from the Netherlands.

The 1970s were a transformative decade for the bank. First, in 1971, the Netherlands Bank of South Africa changed name to Nedbank Ltd., further reducing the direct reference to the Netherlands, even though “Ned” is actually a short form of Nederland, the Afrikaans spelling of “the Netherlands.” In 1973, the umbrella organization Nedbank Group Ltd. was created when Nedbank merged with trust company Syfrets South Africa and merchant bank Union Acceptance Ltd. One of Syfrets SA’s constituents, the South African Association for the Administration and Settlement of Estates (SAAASE), was founded in 1834 and billed itself as one of the world’s first trust companies. Syfrets Trust and SAAASE merged in 1967. Union Acceptance Ltd., meanwhile, was established in 1955 as South Africa’s first merchant bank.

The year 1973 also saw Old Mutual, a historic mutual insurer in South Africa, taking a stake in Nedbank Group Ltd., thus commencing the long and complex association between the two financial services firms. During the decade, Nedbank also established Nedfin Bank by consolidating the Credit Corporation of South Africa Ltd. (founded in 1946) and the Lease Plan International Ltd. (founded in 1955).

The second half of the 20th century was turbulent times in South Africa as the anti-apartheid protest gathered steam. While racial segregation had been in existence since the Dutch settlement and British colonial days, sadly it was further institutionalized in the 20th century, starting with the 1913 Natives’ Land Act, which in contrast to its name, severely restricted income-producing property ownership by the native black population. In 1948, the ruling National Party formally adopted and legislated a white supremacy policy. For the next 46 years, the white minority elite ruled South Africa by apartheid, keeping the black majority population in poverty by barring them from education, property ownership, well-paying jobs, law-making and voting rights, or entering professions such as becoming medical doctors, lawyers or accountants.

Throughout the 1970s and 1980s, clashes between the native protesters and the military grew increasingly violent and deadly. As the anti-apartheid movement gained attention and sympathy outside of South Africa, Christian, grass-root and academic organizations particularly in the U.S. and Britain began to pressure their governments to condemn apartheid. Other African nations also isolated their southern neighbour diplomatically. By the mid-1980s, the push to get American multi-national corporations to divest from South Africa gained traction, though British and European governments and businesses were much slower to follow.

While the anti-apartheid movement was encouraged by the increased economic isolation, the sanctions were not without pain to South Africa’s ordinary native black population: unemployment amongst the already low-income labourers soared, inflation worsened, the rand tumbled against foreign currencies, and economy growth all but disappeared. The rising racial violence, social chaos and economic recession also led to an exodus of the white minority in the 1980s and 1990s.

Amidst this chaos, several important events happened to Nedbank in 1986. First, Old Mutual, the South African Mutual Life Assurance Society that had owned a stake in Nedbank Group Ltd. since 1973, raised its stake in the bank to 53% just as many foreign institutional investors were divesting their South African holdings. In the same year, Nedbank acquired Finansbank Ltd. (a merchant bank founded in 1970) and created the Nedbank Investment Bank. Finally, the Cape of Good Hope Bank (CGHB) also joined the Nedbank Group in 1986. CGHB was established in 1831 and was the country’s oldest bank. CGHB had just over 10 branches and was a niche bank offering wealth management for higher net-worth individuals, financing for commercial and industrial real estate developers, insurance broking and treasury services.

In 1988, the South African Permanent Building Society, which began as the Kimberley Permanent Mutual Building and Investment Society in 1841, was taken over by Nedbank. Just before the close of the decade, Nedbank Group Ltd. adopted the new name Nedcor Ltd. in 1989 as the holding company for Nedbank, Nedbank Investment Bank, Nedfin Bank and Permanent Bank (the new name for the South African Permanent Building Society).

The end of apartheid in 1994 heralded a new era for South Africa, when anti-apartheid activist Nelson Mandela was elected as the President of South Africa. In an optimistic rush to open up banking access to the native black people, Nedcor’s Permanent Bank spun off a division called the Peoples Bank to cater to the low-income, formerly “under-banked” black population.

Unfortunately, the beginning of native black rule and the dismantling of racial segregation laws did little to improve the lives of the masses. The lack of funding and infrastructure to provide education, employment, healthcare, welfare, and public transportation continued to afflict most South Africans. Unemployment remained discouragingly high and income remained suppressed. The AIDS epidemic also devastated the social fabric of the country. Even with the best policies and perfect execution under the most desirable conditions, it could take one or several generations for South Africa’s living standards to improve.

In 1997, trust company Syfrets SA and UAL Merchant Bank (formerly Union Acceptance Ltd.), both part of Nedcor since 1973, were consolidated into Nedbank Investment Bank, which at the same time was renamed Nedcor Investment Bank (NIB). NIB was partially floated on the Johannesburg stock exchange in 1999.

Meanwhile also in 1999, the policyholders of Old Mutual, or formally the South African Mutual Life Assurance Society, voted to de-mutualize itself, moved its jurisdiction of registration to England, and legally adopting the name Old Mutual plc. Old Mutual plc’s shares were then listed on the London, Johannesburg, Zimbabwe, Malawi and Namibia stock exchanges. The insurer and fund manager continued to hold 53% of Nedcor Ltd.

By the early 2000s, the post-apartheid economic recession, which was not helped by the multi-decade low precious metals prices, combined with the revelation of widespread accounting frauds amongst South Africa’s smaller financial institutions led to the collapse of several second-tier banks.

 Recent transaction(s):
  • In 2000, the ailing FBC Fidelity Bank was rescued by the government and subsequently transferred to Nedcor. Nedcor integrated FBC Fidelity into its Peoples Bank unit, which caters to the low-income black population and is also a designated black economic empowerment (BEE) bank. By 2002, Nedcor had transferred 30% of Peoples Bank to a BEE consortium to reduce concentration of ownership by the old wealth and the white minority.
  • Also in 2000, Nedcor Ltd. sought approval to combine with Standard Bank Investment Corp. Ltd. (“Stanbic”), the parent company of Standard Bank of South Africa. However, the South African Ministry of Finance vetoed the proposal.
  • In 2001, Nedcor’s secondary retail banking brand, Permanent Bank, was combined with Old Mutual plc’s Old Mutual Bank with no cash changing hands. Nedcor and Old Mutual plc each owned 50% of the new Old Mutual Banking Services.
  • Also in 2001, Nedcor acquired 50.1% of Imperial Bank, a vehicle finance firm founded by Imperial Holdings in 1996.
  • Also in 2001, Nedcor bought Fleming Offshore Banking from JPMorgan Chase for ZAR 594-million (GBP 51-million). Fleming Offshore was based in the Isle of Man and Jersey. At the same time, Nedcor’s majority owner Old Mutual plc transferred its own Guernsey-based fiduciary business into Fleming Offshore, which was then re-named Gerrard Private Bank. When all transactions completed, Nedcor held 74.5% of Gerrard Private Bank, with Old Mutual plc holding the rest.
  • Another major constituent that became part of Nedcor was the BoE Ltd., which traces its history to the 1838 establishment of a Cape Town trust company called the Board of Executors (as in the executor of a will and testament). In 1998, BoE took over NBS - Natal Building Society (established in 1882) and Boland PKS (established in 1900). The acquisitions proved ill-timed, as rising mortgage impairments severely undermined BoE NBS’ capital ratio. In 2002, a confidence crisis sent panicky depositors rushing to withdraw their money from the bank. Soon after the bank run, BoE Ltd. agreed to a buyout offer from Nedcor Ltd. worth ZAR 7.7-billion (GBP 485-million). By acquiring the No. 6 bank BoE, Nedcor became South Africa’s largest bank based on deposit.
  • In October 2002, Nedcor Investment Bank bought the 50% stake of Franklin Templeton Nedcor Investment Bank Asset Management Ltd. it didn’t already own for ZAR 180-million (GBP 11-million).
  • Also in 2002, Nedcor Ltd. acquired the 16% of Nedcor Investment Bank that it didn’t own from the public and Old Mutual plc for ZAR 685-million (GBP 43-million).
  • In 2005, Nedcor Ltd. went back to its old name Nedbank Group Ltd.
  • In 2007, Nedbank bought out its parent Old Mutual plc’s 50% interest in Old Mutual Banking Services. The now wholly-owned Old Mutual Bank would provide banking services to Old Mutual plc’s life insurance clients.
  • In 2008, Nedbank and Ecobank Transnational Inc. announced an alliance to improve client and business relationships. Ecobank is a Togo-based, pan-African bank that operated over 600 branches across dozens of countries in middle Africa.
  • In 2009, Nedbank bought the 49.9% of vehicle financier Imperial Bank that it didn’t already own from partner Imperial Holdings for ZAR 1.77-billion (USD $226-million).
  • In August 2010, Anglo-Hong Kong banking giant HSBC Holdings plc announced that it was in talks to acquire 70% of Nedbank Group Ltd., including the entire 52% stake held by Anglo-South African insurer Old Mutual plc, for USD $7.3-billion. However, the talks ended two months later without a deal.
  • In December 2011, Nedbank provided a three-year, USD $285-million facility to Ecobank Transnational Inc. with a call option that allowed Nedbank to subscribe to 20% of Ecobank between the 24th and 36th month after the closing of the transaction. The facility enabled Ecobank to acquire Oceanic Bank of Nigeria. By the end of 2011, Ecobank served over 8 million clients through over 1,100 branches.

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