BOE manoeuvres into the international finance market with new partner NatWest. Lynda Loxton reports
After keeping the market guessing about its intentions for more than a year, Board of Executors (BOE) has unveiled an innovative scheme that instantly plugs it into one of the world’s leading finance and investment groups.
The tie-up with Britain’s National Westminster Group, through its worldwide corporate and investment banking arm, NatWest Markets, is one of the biggest investments by a British bank in South Africa to date. It varies considerably from the trend so far of foreign banks only shopping for stock brokers in the run-up to the deregulation of the Johannesburg Stock Exchange (JSE) in November.
Managing director of the newly created BOE NatWest Tom Boardman said NatWest had bought into a corporate and investment banking business that was “instantly up and running.”
In terms of the agreement, National Westminster Bank, through NatWest Markets, has bought 50 percent of the issued share capital of BOE Merchant Bank, which has changed its name to BOE NatWest Limited. The R90-million deal went into effect on October 1.
Once dual membership of the JSE comes into play next month, BOE NatWest will take over the stock broking operations of Ed Hern, Rudolph Incorporated to create BOE NatWest Securities.
BOE has extended its traditional services to private clients by establishing a private bank, using Discount House Merchant Bank Limited acquired in January this year to create BOE Private Bank and Trust Company.
It was the decision to buy the Discount House Merchant Bank that first signalled that BOE was up to something. BOE then started beefing up its staff, making senior appointments in Johannesburg and bringing in the Ridge corporate finance team, who were previously part of French Bank.
The long-standing friendship between BOE managing director Bill McAdam and a NatWest Markets managing director John Sanders also came into play as BOE decided against following the trend of opening up offices abroad in anticipation of the lifting of exchange controls.
Instead it decided to seek a strong international partner. McAdam and Sanders introduced their colleagues to each other and the game was on.
The end result is that BOE does not have to take on the daunting task of setting up shop abroad on its own, and NatWest in turn has its own instant network in South Africa.
BOE NatWest Securities will particularly benefit from NatWest’s vast international research team, consisting of more that 160 analysts researching 1 400 companies in 19 countries.
“More and more the world is becoming a global market. If someone wants to buy energy stocks, for instance, they do not just look at buying energy stocks in Australia or South Africa. They look to where in the world are the best opportunities,” Sanders said.
Until exchange controls are lifted, this is of limited use to South Africans, who can only invest here. But once controls are lifted, as many expect to happen sooner rather than later, then the benefits will kick in in a big way.
“As exchange control comes off, there will be much more interest in South African institutions investing overseas and they will be able to use our research. It will create more liquidity in this market,” Sanders said.
But he does not expect that exchange controls will be lifted entirely, or that institutions will rush to get their funds out of the country.
“I will be surprised if the government immediately tries to take exchange controls off in their entirety,” Sanders said, adding that it was much more likely that South Africans would only be able to invest a certain, albeit growing, portion of their funds abroad.
“In my conversations with institutions it has been clear that they will not rush into converting their existing portfolios but will gradually build up their overseas tranche.”
“We must not underestimate the benefits and the synergies of having other investment bank activities next to broking activities,” Boardman said.
The link-up will also mean that BOE will not have to “reinvent the wheel” in coming to grips with the move from floor-based to screen-based trading early next year.
For Boardman, the challenge is to consolidate the BOE NatWest operations, with new appointments, secondments and training in both directions.