S. Africa Seeks Viceroy Probe as Capitec Clients Stay Loyal

(Bloomberg) -- South Africa’s Treasury called for an international probe into short seller Viceroy Research over its allegations against Capitec Bank Holdings Ltd. as the lender said its customer numbers were stable.

The Pretoria-based Financial Services Board must alert regulators like the Securities and Exchanges Commission in the U.S. and the U.K.’s Financial Conduct Authority to consider whether Viceroy is regulated appropriately, the National Treasury said in an emailed statement on Thursday. Authorities should check whether Viceroy “transgressed any of their market conduct and market abuse laws that aim to protect investors.”

Capitec’s stock gained the most in two years on Thursday, ending four days of losses that wiped 25 percent off its market value as concerns over Viceroy’s report eased. The three-person firm led by a former U.K. social worker and two young Australians on Tuesday accused the lender of refinancing defaulted loans with new debt. The bank described the analysis as one-sided and inaccurate and laid a complaint against New-York based Viceroy with the country’s stock-market regulator.

“Initially, there were some jitters, but it quickly stabilized and clients are very supportive of the bank,” Capitec Chief Executive Officer Gerrie Fourie said in response to emailed questions on Thursday. “We opened more than 8,000 new client accounts on the same day after the news broke.”

Profit Motive

The “reckless way” in which Viceroy released its report on lender Capitec is proof that it’s not acting in the public interest nor in the interest of financial stability in South Africa, the Treasury said. Viceroy “stood to benefit substantially from forcing the Capitec share price to fall by publishing its speculative report about the bank,” it said.

Viceroy had made a short bet on Capitec’s stock, founder Fraser Perring said in an interview with Bloomberg TV on Tuesday, meaning it would profit from a decline in the share price.

“We welcome any lawful investigations into impropriety in our report, which is publicly sourced,” Viceroy tweeted in response to the Treasury’s comments. Viceroy, which doesn’t have a verified Twitter account, already works with regulators in the U.S. on other issues, and welcomes “the opportunity to similarly assist the FSB,” it said in the tweet. Spokeswomen at both the FCA and SEC declined to comment.

While analysts at Deutsche Bank AG and Arqaam Capital Ltd. have suggested Capitec allow for an independent investigation to put the allegations to rest, the lender’s CEO said this isn’t being considered.

‘100% Confident’

Capitec is “100 percent confident” it won’t need to restate its finances, said Fourie, who bought stock on Wednesday after the price declined. The bank will respond further to Viceroy’s allegations “as soon as information becomes available in the next few days.”

South Africa’s central bank said this week it has no evidence to suggest the lender’s stability is in question, while S&P Global Ratings said its assessment of Capitec is unaffected by the Viceroy report or subsequent market reaction. South Africa’s FSB confirmed it’s investigating possible market abuse and breaches of the Financial Markets Act regarding Viceroy’s report, Business Day newspaper said on Friday, without saying where it got the information.

“I am not taking my money out,” Alinah Letsoala, a 37-year-old Capitec client said outside a branch in Johannesburg. “Capitec has been looking after me better than any other bank. I heard on the radio about the story, I think it can be fake news.”

National Treasury is satisfied Capitec is well-capitalized, liquid and solvent. Futuregrowth Asset Management, South Africa’s biggest specialist fixed-income money manager, also said Capitec is adequately provisioned and that the fund manager will continue to be one of the lender’s funding partners.

‘Healthy Lender’

“Capitec is a stable, healthy alternative lender, and our research has not caused us to be concerned about their solvency, asset quality or liquidity,” the Cape Town-based money manager said in an emailed statement on Thursday.

While unsecured lending is “inherently risky, prone to excess, and works on the boundaries of responsible lending, it is our view that Capitec has been prudent in managing its lending book,” it said.

Separately, Capitec responded on Thursday to Benguela Global Fund Managers (Pty) Ltd., which wrote to the bank on Jan. 19 questioning its lending practices. No adjustments are required for the bank’s provisions while its loan rescheduling policy isn’t aggressive, profit hasn’t been overstated and initiation fees weren’t charged for rescheduled loans, Capitec said.

Flat Pancakes

Viceroy didn’t contact Capitec before publishing its report and hasn’t been in touch since Tuesday either, according to Fourie. He said the bank has “an open door” if investors and analysts want to talk with management.

Research isn’t always credible when the company being written about hasn’t been contacted, said Kokkie Kooyman, a director at Cape Town-based Denker Capital, which has the equivalent of $1.5 billion in assets. “It makes sense to listen to the other side: ‘no matter how flat a pancake, there is always another side.’”

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