| Mon 19 May 2003, 10:50 | | Nedcor knocked by rand, rates, equity slump |
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May 19, 2003
By Bloomberg
Johannesburg - Nedcor, the country's third-largest bank, said on Friday that a slump in equity markets, higher interest rates and a stronger-than-expected rand had hurt earnings in the first four months of the year.
The trading update to the market came just five days after Nedcor faced a possible insider trading investigation for talking about earnings expectations without releasing the news using the Stock Exchange News Service.
Earnings a share before one-time items, goodwill and currency fluctuations - "core" earnings by Nedcor's definition - fell in the four months to April from a year ago. The bank, which reports earnings twice a year, did not provide figures for earnings a share.
Nedcor cut costs for a decade to become the most efficient of the country's top four banks before buying BoE last year as part of its expansion in the economy.
Now it might cut jobs and other costs in a bid to boost earnings, said finance director Stuart Morris.
"Given that revenues aren't quite where we would like them to be, we are going to look further at where we can cut on the cost side," Morris said.
"Staff comprises about 50 percent of total costs."
Nedcor shares fell R3.50 to R92 on Friday, taking its loss this year to 17 percent and making it the worst performing stock on the five-member FTSE/JSE Africa banks index.
Nedcor's tax rate on profit would rise to 25 percent or higher this year from less than 20 percent, Morris said
.
The bank's income from trading was lower than expected, he said.
"When factoring in BoE, we are not doing quite as well as we would have liked to have done," Morris said.
Nedcor will start earning revenue in July from a venture to process transactions for Swisscard, a credit card company based in Switzerland.
"They need to button this merger down," said Chris Steward, a fund manager at Investec Asset Management.
"At this stage, it's diluting earnings."
Nedcor said it would cut about R110 million a year in annual costs this year by merging its businesses with those of BoE. It plans to save R905 million a year by 2006.
Nedcor might also defer spending on new computers and reduce executive travel, Morris said, without giving details.
The company's net income for the four months was hurt by a 20 percent decline in the rand value of international earnings, Nedcor said.
The rand has climbed 11 percent against the dollar this year.
The currency's gain also resulted in a R300 million decline in the value of its assets outside South Africa, Nedcor said.
The Reserve Bank raised interest rates by 4 percentage points last year, crimping demand for credit.
"Credit demand has been tight," Morris said. "High rates cause people to think twice before they borrow." - Bloomberg
