When Nedcor’s hostile takeover attempt of Standard Bank was shot down by Finance Minister Trevor Manuel three years ago, the South African banking group’s long-cherished dream of becoming the region’s biggest bank able to compete with global players seemed all but dead.
It finally achieved its goal two-and-a-half years later, however, when the regulatory authorities gave the nod for a merger with BoE. And now, a further six months down the line, the merger is well on track with synergies from the tie-up being realised far earlier than expected, indicating — certainly in the opinion of those at Nedcor — that it was truly a marriage made in heaven.
The synergies already realised certainly point to a blissful and prosperous union. According to Nedcor CEO Richard Laubscher, merger synergy benefits — on an annualised basis — of R190-million have already been achieved in the first six months. This exceeds an initial forecast of R90-million and translates to a R69-million income statement benefit for the half-year which ended in June.
And Laubscher has little doubt that Nedcor will meet its targeted merger synergies of R905-million rand each year from 2006.
He said on Wednesday that the integration process, which had started in July last year (five months before the final go-ahead was received from the authorities) and which had been meticulously planned, would be completed in 2005, after which the full annual synergies of R905-million (operational synergies of R660-million plus the capital and funding efficiencies already achieved) would be gained.
He added that the merger with BoE had set a solid foundation for the group’s future earnings growth by consolidating market shares, leveraging Nedcor’s technology platform and brand rationalisation.
A number of key areas of the integration, such as the group’s treasury operation, had already been completed and had gone extremely well. A significant portion of the integration work had now taken place giving the group complete confidence that the expected synergy targets would be met.
A number of merger synergy benefits were being realised earlier than initially expected, he added. Merger costs were also being incurred at an earlier date to facilitate the continued early realisation of benefits.
The total merger costs would however be higher than initially forecast, mainly from additional information technology and the complexity of merger initiatives.
“The total cost projection is R158-million higher than the R710- million initially forecast. This will not, however, impact the total ongoing expected merger benefits.”
But he added: “The group has undertaken a major restructure following the merger with BoE and this will position Nedcor well for growth in the years ahead. I am particularly pleased with the progress of the integration, which is slightly ahead of schedule, and has been achieved with a high level of client retention and minimal client inconvenience. During this integration period we will remain strictly focused on our clients’ needs.”
Integration successes over the past year include:
Rationalisation in the asset management business with Quaystone set up as an empowerment asset manager
Restructuring of the wealth management and private banking businesses and the creation of a joint venture with Old Mutual to focus on private clients.
Realisation of over R1-billion of non-core assets including the sale of Canal Walk.
All ATM and POS operations have been integrated into a single operation.
Integration of the capital markets and treasury operations well on track to halve the number of information technology systems in use.
The group’s restructure will see it focus on three key brands — Nedbank, Nedbank Corporate and Peoples’ Bank — and five major joint venture brands — BoE, Imperial Bank, Old Mutual Bank, Pick ‘n Pay Go Banking and Gerrard Private Bank. This brand portfolio allows Nedcor to target specific markets while leveraging the scale of the enlarged group, and to offer clients a wider range of delivery channels.
The brand and branch rationalisation will see the group’s total staff number being reduced over the next few years. It is envisaged that the current hiring freeze, implemented soon after the merger took place and natural attrition will keep retrenchment to a minimum.
The group’s headcount has already been reduced from about 25 700 to 24 580.
Any trade-offs, however, are far outweighed by the benefits which have seen Nedcor substantially increase its size and market share, with domestic assets burgeoning from R198-billion to R265-billion and deposits swelling from R149-billion to R205-billion.
The group now also has a far stronger presence in Kwazulu-Natal and the Western Cape, as well as increased offshore exposure and a broader investment banking base.
“Fundamentally what we want is to be a major universal bank in South Africa, with an appropriate profile in Africa and internationally,” says Laubscher.
However, he indicates the group is not looking to become too involved beyond the country’s borders.
“What we’re actually looking for,” he explains, “is a powerful position in South Africa, a selective position in Africa and a very selective position internationally.” – I-Net Bridge