| Fri 30 May 2008, 12:53 | | FSR - FirstRand Limited - Draft Voluntary Trading Update |
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FSR
FSR
FSR - FirstRand Limited - Draft Voluntary Trading Update
FirstRand Limited
(Incorporated in the Republic of South Africa)
Registration number: 1966/010753/06
JSE Share Code: FSR & NSX Share Code: FST
ISIN: ZAE000066304
("FirstRand" or the "Company")
DRAFT VOLUNTARY TRADING UPDATE - MAY2008
When announcing its results for six months to December 2007 FirstRand
highlighted to shareholders that the deteriorating macro environment, both
domestically and globally, would result in a more challenging operating
environment for its banking businesses. As anticipated, increased interest rates
as well as food and fuel price inflation have negatively impacted consumers`
affordability levels particularly in the middle income market segment. Whilst
underlying growth in transactional activity remains solid, retail lending
continues to slow down and impairment levels are increasing.
The diversity of FirstRand`s portfolio of businesses mitigates to some extent
the impact of some of the macro issues. Whilst the retail banking franchises are
experiencing the effects of a tough consumer cycle, the Group`s corporate
franchises continue to experience strong organic growth. The Group`s insurance
subsidiary, Momentum, is expected to meet its earnings growth target.
The Group indicated at the announcement of its interim results that its revised
estimate for bad debts for the year to June 2008 would be between 120 and 130
basis points, which was predicated on unchanged interest rates for the remainder
of the financial year. The interest rate increase in April will now result in a
further 10 to 15 bps increase on the base case estimate, with a revised range of
130 to 145bps for the year. This deterioration is in line with the portfolio bad
debt sensitivity analysis previously presented and was anticipated across all
retail portfolios.
As expected, given the point in the interest rate cycle combined with potential
further rate increases and potential negative property growth, the residential
mortgage impairment levels (particularly in First National Bank`s (FNB) consumer
segment) have begun to trend rapidly above the December 2007 levels. For the
year to June 2008 residential mortgage impairments are expected to be above 90
basis points 2007 - 28bps).
WesBank`s earnings continue to be negatively impacted by the combined impact of
lower asset growth and higher bad debts characteristic of the current cycle. The
process of exiting its Australian operations is on track and the Group is
optimistic that the net result of the exit process of the lending operations
should be largely offset by the disposal of Worldmark.
As reported in FirstRand`s interim results announcement, Rand Merchant Bank`s
(RMB) international Equities Trading portfolio incurred losses of $200 million
up to 31st December 2007. Since then markets have remained volatile with
increased risk and FirstRand was not comfortable with exposing the earnings of
the Group to further volatility. Consequently, notwithstanding a belief that the
portfolio should yield long term value, a decision was taken to de-risk the
portfolio and begin a process, on a controlled basis, of selling down whenever
market liquidity presented. The portfolio is now a quarter of its peak. Whilst
every effort is being made to limit the economic impact of this process, losses
have been incurred in the international portfolio in the second half of the
financial year, although they will be less significant than in the first half.
Despite the base effect of the R1.43 billion profit generated by the total
equities trading activities and the overall exceptional performance of RMB in
the period to June 2007, RMB is expected to deliver strong profitability
particularly given the excellent performances from its investment banking,
private equity and treasury businesses. However, as previously stated, RMB will
not repeat last year`s profit performance in the current year.
Whilst four weeks remain until FirstRand`s year-end, it is clear to the Board
that the combination of the increase in bad debt levels and losses in the
international equities trading portfolio will impact the Group`s earnings for
the financial year to 30 June 2008. Accordingly shareholders are advised that
FirstRand`s 2008 actual diluted headline earnings per share (2007 - R10.9
billion: 204 cps) and pro forma normalized earnings per share following the
unbundling of Discovery (2007 - R11.3 billion: 200.6 cps) are expected to be
similar to the prior period.
This anticipated outcome does underscore the inherent resilience of FirstRand`s
portfolio of financial services franchises and its ability to maintain its
strong capital position, and the Group expects that over the medium term
earnings growth will trend back to an acceptable real growth rate.
The above information has not be reviewed or audited by the Company`s external
auditors.
Details of FirstRand`s results for the financial year ended 30 June 2008 are
expected to be released on SENS and published in the press on or about 16
September 2008.
Sandton
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 30/05/2008 12:53:02 Produced by the JSE SENS Department.
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