Despite making substantial losses, the Reserve Bank's financial statements have been approved, writes Lisa Steyn.
An impressive spread of sandwiches, bagels and fruit skewers awaited South African Reserve Bank shareholders, who sipped on tea and coffee before turning their attention to the issues at hand at last week's 92nd ordinary general meeting. Once the day's business had been wrapped up, they were treated to lunch. But apart from the modest dividends received each year, the annual general meeting's complimentary snacks seem to be the only tangible benefit of holding shares in the Reserve Bank.
Shareholders are limited to holding 10 000 shares each and the dividend is set at 10c a share. It means the maximum dividend a shareholder can hope for is R1000 a year as individuals, or as an association. There are two million shares in issue valued at R1 each.
Activist shareholders have in previous years disrupted meetings with numerous comments and complaints about governance at the bank.
It seemed this year would be no different, even though shareholder activist Michael Duerr did not attend the meeting. Duerr famously appeared at one meeting barefoot and wearing lederhosen. Duerr, who lives in Germany, told the Mail & Guardian his wife was not keen for him to travel to South Africa after the recent incident in which Irvin Jim, the general secretary of the National Union of Metalworkers of South Africa, was followed by suspicious characters in a car.
Duerr submitted a letter to oppose the resolution to adopt the accounts in their present form on the basis that they did not comply with relevant codes of practice such as King III and lacked proper disclosure and audit certification because of the failure to reflect major past and recent losses.
does not comply
He also requested that the minutes for the 2011 annual general meeting be amended to include the "important" discussion and presentations that took place.
Reserve Bank governor Gill Marcus did not respond to the issues Duerr raised. The meeting went off without any interjections. If shareholder activists were present, they did not reveal themselves.
Marcus discussed a number of issues raised by shareholders. Since its establishment in 1921, the Reserve Bank has always been privately owned and now has more than 660 shareholders. It delisted from the Johannesburg stock exchange in 2002 and its shares are now traded on the over-the-counter share transfer facility market on its website.
Marcus said the board had considered relisting on the JSE, but decided this would not be viable. She undertook to investigate the option following a telephone conversation with Duerr.
"Having considered the requirements for listing on the JSE, it is clear that the bank does not comply in a number of areas," Marcus said. "For instance, the number of shares in issue, the profit history and others. Taking such factors into account, as well as the low trading volume and the cost of listing the shares, the board resolved not to relist the shares." She said the board would reassess its decision should circumstances warrant it.
Duerr said he was in the process of filing papers with the International Centre for Settlement of Investor Disputes because of the refusal to list on the JSE. He said the listing was necessary for the Reserve Bank to conform with requirements of transparency and good corporate governance.
"I also want to bring to the light of day the lies and betrayals to the public and shareholders for decades," Duerr said. "The owners of the South African Reserve Bank and the public are being cheated on purpose. This has to be flushed out."
As a foreign shareholder living in Germany, Duerr said he was able to use a bilateral investment treaty that refers investment disputes to the dispute centre.
Marcus emphasised to shareholders at the meeting that the bank was a not-for-profit entity and its dividend policy would not change.
A few years ago, shareholders discussed the possibility of 10% of the bank's profits being distributed to them each year. The idea was dismissed in 2010 and Marcus reiterated that it was out of the question.
The latest financials show substantial losses: the bank reported an after-tax loss of R490.5-million compared with a loss of R1.2-billion in the previous financial year.
"The bank has been accumulating foreign exchange to strengthen the country's reserves," Marcus said. It has accumulated more than $4-billion in foreign exchange reserves. The process of sterilising the impact of these purchases on domestic liquidity contributed to the loss.
"The interest rates paid on such transactions are higher than the interest received on the bank's foreign reserve holdings due to the low interest rate environment globally," Marcus said. "The situation is outside the bank's control and is dependent on market conditions."
Net interest income was also sufficient this year to neutralise the declining operating income and the rise in operating costs, which were mainly driven by an actuarial provision for post-employment medical benefits.
Marcus then called for shareholders to vote on the first resolution – the acceptance of the financial statements. The vote showed 91% in favour and 5% against. The remainder abstained.
A new independent non-executive director, Anthony Chait, was elected with a vote of 62% in his favour.
Chait, the owner of Zeridium, a tax and exchange control consultancy, will replace Stephen Goodson, a board member since 2003. Goodson resigned on May 3, only months before his term was due to end. It came shortly after the M&G reported that he held extremist views on Adolf Hitler's Germany and Muammar Gaddafi's Libya and denied that the Holocaust had taken place.
Repo cut not an 'easing tactic'
In a move that surprised market analysts last month, the Reserve Bank cut the repo rate by 50 basis points, citing subdued inflation and continued fears about the spillover effects of the eurozone financial crisis.
But at the annual general meeting, Marcus said this was not the beginning of a renewed interest rate easing cycle. "The interest rate reduction should be seen as part of the continued monetary policy response to the crisis that began in 2008," she said.
At times like these, expectations were high, but central banks were limited in what they could do, Marcus said. "It is important that central banks focus on what they can do and not what some would like them to do."