| Mon 18 Oct 2010, 15:15 | | NED - Nedbank Group Limited - Third Quarter 2010 Trading Update and Withdrawal |
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NED
NED
NED - Nedbank Group Limited - Third Quarter 2010 Trading Update and Withdrawal
of Cautionary
NEDBANK GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
(`Nedbank Group` or `the group`)
THIRD QUARTER 2010 TRADING UPDATE AND WITHDRAWAL OF CAUTIONARY
`Whilst economic conditions have improved since 2009, the global recovery
remains muted and uneven. South Africa`s gross domestic product growth in the
second half of 2010 is likely to be slower than in the first half. Against this
background we are pleased that the group and bank remain well capitalised,
liquid and solidly profitable at levels ahead of the prior period.
Nedbank Group has built a solid platform from which to grow and to service
clients and our vision remains to build Africa`s most admired bank by
strategically focusing on areas with strong economic profit potential in South
Africa and in the rest of Africa.
Nedbank Group has a clear strategy, a good track record, a fundamentally well
positioned banking business and a strong management team to grow our business,
and increase shareholder value as we deliver on our vision. We have recently
completed our 2011-13 planning process and, given our current economic outlook,
remain confident that we will meet all our medium- to long-term financial
targets by 2013.`
Mike Brown
Chief Executive
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders were advised on 15 October 2010 that HSBC Holdings plc ("HSBC")
ended talks on a proposal to submit a bid for a controlling interest in Nedbank
Group.
Nedbank Group stated at the time of the initial cautionary announcement that the
proposal may or may not lead to a bid by HSBC. Old Mutual plc ("Old Mutual")
commented in their announcement on Friday 15 October 2010 that the reasons for
HSBC`s withdrawal were not disclosed to Old Mutual, but were not, as far as Old
Mutual was aware, related to any adverse findings during HSBC`s due diligence of
Nedbank Group.
The HSBC proposal to Old Mutual represented an opportunity to accelerate the
delivery of the group`s vision and accordingly the board and management were
disappointed when HSBC informed Old Mutual that they had decided to withdraw the
proposal.
The cautionary announcement originally issued on 23 August 2010 and renewed on
30 September 2010 is accordingly withdrawn. Caution is no longer required to be
exercised by shareholders when dealing in Nedbank Group securities.
OPERATING ENVIRONMENT
The global and domestic banking environment remains challenging for the banking
industry and recent indicators from key industrialised countries suggest that
the economic recovery is losing momentum. Global confidence levels remain
fragile as business conditions continue to be impacted by the uncertainty
associated with evolving banking regulations, risks emanating from high levels
of public and private sector debt and weak property markets.
Locally, the economy gained some momentum in the first half of the year mainly
driven by a revival in household spending brought about by higher household
income, lower interest rates and the boost from the FIFA World Cup.
Household demand for credit edged up from a low base as a result of improved
demand for asset-based finance. The decline in instalment sales and leasing
finance moderated while mortgages showed weak but steady growth. Encouragingly,
households increased debt repayment levels, resulting in the ratio of household
debt to disposable income easing to 78,2% at the end of June 2010 from just over
80% at the end of 2009. Corporate demand for credit remains weak as underlying
confidence is still low and businesses remain reluctant to expand operations too
quickly in the current economic environment where there is still excess
manufacturing capacity.
OPERATIONAL PERFORMANCE
Nedbank Group remains solidly profitable and well capitalised. The strategic
focus on areas with strong economic profit potential is showing some early signs
of success, particularly in the growth in core fee and commission income within
non-interest revenue (NIR).
Net interest income (NII) at R12 214 million for the nine months ended September
2010 ("the period") was slightly up on the prior period (Q3 2009: R12 198
million). The net interest margin held up better than anticipated at 3,32% for
the period (Q3 2009: 3,40%), compared to 3,34% for the six months ended June
2010. The benefit of increased margins on new advances and widening of asset
margins due to a change in asset mix was largely offset by the negative
endowment impact from falling interest rates on capital and the non-repricing of
current and savings accounts and higher term funding costs as the group
lengthened its funding book earlier this year.
Encouragingly, impairments have continued to slow, reflected in lower levels of
early arrears and reduced inflows into defaulted advances in the retail
portfolio. Consequently, the group`s credit loss ratio has improved from 1,46%
for the six months to June 2010 (Q3 2009: 1,52%) to 1,36% for the period.
Although impairment levels have improved across most of the clusters, the group
remains cautious given the sustained high levels of unemployment, personal
indebtedness and tough operating conditions in the wholesale sector. During the
period the adequacy of impairments (both current and forecast) in the retail
home loan portfolio were reviewed by an independent global risk management
consultancy firm. The results of this review confirmed that current provisioning
is appropriate and that forecast provisioning for the medium term is in line
with group planning assumptions.
NIR grew by 10,2% to R9 413 million (Q3 2009: R8 542 million). Core fee and
commission income grew by 17,1% (13,2% growth including in 2009 the Wealth joint
ventures acquired last year from Old Mutual). Growth resulted from increased
volumes in electronic banking, cash handling, vehicle asset finance, personal
loans and insurance related fee income. Trading income was flat as a result of
low market volatility. Private equity income was impacted by lower market
revaluations on certain investments and NIR was negatively impacted by R207
million over the period as a result of fair value adjustments from our
subordinated debt unwinding as credit spreads narrowed.
Expenses remain in line with expectations and the guidance given in the 2010
interim results.
Total assets at 30 September 2010 increased by 10,0% (annualised) to R613,4
billion from December 2009. Advances grew by 10,1% (annualised) to R484,2
billion reflecting solid growth across most of the retail asset categories, with
the exception of home loans where market share decreased marginally in line with
the group`s strategy of growing higher economic profit generative businesses.
Credit appetite in the business sector remains subdued due to excess capacity
and public sector spending momentum which has slowed, as expected, post the FIFA
World Cup.
Optimising the group`s funding and liquidity profile remains a key management
focus, with particular emphasis on lengthening the liquidity duration of our
funding profile. The long-term funding ratio improved to in excess of 24% as at
30 September 2010 (Q3 2009: 21,2%). Deposits increased 8,3% to R498,6 million
(annualised) and long-term senior debt grew by 42,9% (annualised) to R26,5
billion during the period.
The group continues to be well capitalised with capital ratios well above
current regulatory and anticipated Basel III requirements, as well as the
group`s own internal targets.
August 2010 Internal Regulatory
ratio * target range minimum
Core Tier 1 ratio 9,8% 7,5% to 9,0% 5,25%
Tier 1 ratio 11,4% 8,5% to 10,0% 7,00%
Total capital ratio 14,6% 11,5% to 13,0% 9,75%
* September 2010 capital adequacy ratios will be reported on when the group
releases its Pillar III report in due course.
PROSPECTS
Activity in the corporate environment in South Africa is likely to remain muted
for the balance of the year owing to uncertainty in global markets, whilst
consumer confidence continues to be weighed down by job losses and a weak
property market. Lower interest rates are expected to continue to benefit
impairments, although it is likely to take some time before this translates into
higher transaction volumes and asset growth. The prospect of further interest
rate reductions, if they occur, could impact margins negatively in the short
term but should benefit impairments over the longer term.
In this challenging environment the group remains focused on sustainable growth
and continues to seek opportunities to unlock existing value while continuing to
invest for long-term growth.
Nedbank Group`s headline earnings for 2010 are expected to be between 6% and 14%
higher than the 2009 year. The group`s diluted headline earnings per share for
2010 are currently expected to be between 0% and 8% higher than the 983 cents
per share reported for the year to December 2009.
Diluted earnings per share are currently expected to be between 5% and 13% lower
than the 1 109 cents per share reported for the year to December 2009. Diluted
earnings per share in 2009 contained a one off accounting benefit of R547million
resulting from the purchase of the Wealth joint ventures acquired from Old
Mutual in 2009. Earnings per share have been impacted by a higher than usual
scrip take-up of 82% earlier this year. This created a higher base compared to
diluted headline earnings per share as forecast for year end.
Shareholders are advised that these forecasts and the figures stated in this
trading update have not been reviewed or reported on by the group`s auditors.
FORWARD-LOOKING STATEMENT
This announcement contains certain forward-looking statements with respect to
the financial condition and results of operations of Nedbank Group and its group
companies, which by their nature involve risk and uncertainty because they
relate to events and depend on circumstances that may occur in the future.
Factors that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, global, national and
regional economic conditions, levels of securities markets, interest rates,
credit or other risks of lending and investment activities, together with
competitive and regulatory factors.
Sandton
18 October 2010
For further information kindly contact
Tier 1 Investor Relations
Tel: +27 (0)21 702 3102
Sponsors to Nedbank Group in South Africa:
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Sponsor to Nedbank Group in Namibia:
Old Mutual Investment Services (Namibia) (Pty) Ltd
Date: 18/10/2010 15:15:55 Produced by the JSE SENS Department.
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