Top S. African Banks Split on Dividends as Investec Pays Up

Investec Group surprised with a first-half dividend even as regulators urge banks to conserve cash for the coronavirus pandemic, and after a larger South Africa rival warned shareholders not to expect anything for 2020.

London- and Johannesburg-listed Investec two months ago said it doesn’t anticipate declaring a dividend for the six months through September after South African and U.K. regulators asked lenders to hold off on payouts. Absa Group Ltd. earlier on Thursday said it’s unlikely to declare anything for the year through December after withholding its interim payout.

Investec is satisfied it has enough capital to weather any further financial shocks, Chief Executive Officer Fani Titi said on a call. It engaged regulators on the 5.5 pence per-share payout, most of which will be funded using dividends from its 25% stake in money manager Ninety One and its wealth-management businesses, he said.

Standard Bank Group Ltd. and FirstRand Ltd., Africa’s biggest banks, have indicated they have surplus capital that could be distributed to investors, but that they will only consider this early next year.

Absa, the third-largest South African bank, ruled out a dividend despite having strong capital buffers, which are expected to be further bolstered during the second half of this year. Full-year adjusted earnings will probably decline more than 40% from a year earlier, Johannesburg-based Absa said in a statement on Thursday.

While Investec was able to fund its payout from dividends it received, a similar move by Absa would bring it too close to its minimum internal targets, Jan Meintjes, a portfolio manager at Cape Town-based Denker Capital, said.

As the Covid-19 crisis progresses globally it appears banks are less likely to run into capital problems and that the demand for funding is not as high as expected, Titi said in an interview.

“Every board has to look at their prospects, look at their capital bases and make decisions in the long-term interests of their stakeholders,” he said.

Investec, which withheld its dividend for the 12 months through March, is expecting an improvement in the second half of 2020 as client activity levels and provisions improve, the company said in a statement.

First-half adjusted profit fell to 104.4 million pounds ($138 million) from 212.3 million pounds a year earlier.

Shares in Absa rose 0.4% by 4:49 p.m. in Johannesburg, while Investec Ltd. fell 6%. The six-member South African banks index was down 1%.

Investec’s revenue was weaker than expected and the lender suffered hedging losses related to structured products in the U.K. that will continue into 2022, Meintjes said.

“Given the size of the losses and how long they will be with us, we have to question the risk management around this book,” he said. Still, both Absa and Investec remain “very well capitalized and we believe undervalued.”

©2020 Bloomberg L.P.

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