Absa to take N$1,1 billion loss

ABSA, the South African lender most exposed to single stock futures, would write down nearly N$1,1-billion on the value of shares in four JSE-listed firms it was forced to buy last year, the bank revealed on Friday.

The banking group would carry the losses incurred on these deals into its income statement when it reports results for the six months to June.Single stock futures give investors the right to buy or sell shares at a fixed price on a given date in the future. If the shares fall below a certain level, the broker will ask investors to provide additional collateral. As investors were unable to comply, the bank had no alternative but to buy the shares.Absa said in a trading update that the impairment would result in earnings falling even further than previously stated – by 38,9 per cent in the case of Absa Group and by 49,9 per cent for Absa Bank.In Absa’s case, the impairment value represented the difference between the amounts the clients owed (and that Absa was forced to pay) and the value at which the stocks now trade.This pushed Absa’s earnings performance this year to the bottom of the pile, as analysts expect most local banks to report falls in earnings in the region of 30 per cent.Last week, Standard Bank said interim earnings a share would fall by between 30 per cent to 35 per cent.Kokkie Kooyman, the head of Sanlam Investment Management Global, said at the weekend that Absa’s impairment charge as a result of the single stock futures debacle had come in higher than expected. It was possible that new chief executive Maria Ramos wanted to ensure that ‘any loss is all cleared out’, he said.’What happened was a disappointment – that controls were so lax as to allow such large positions to build up in very illiquid shares,’ he said.Nevertheless, the impairment was expected to be a once-off charge, provided controls were tightened up.Absa’s large exposure to single stock futures resulted in the group being forced to pay N$1,44 billion at the end of last year to acquire 28 per cent of JSE-listed Pinnacle Point, 16 per cent of Blue Financial Services, 10 per cent of Converge Net and 17 per cent of Sekunjalo Investments.Absa subsequently initiated a detailed review and valuation of the investments, which put the pretax impairment value at N$1,1 billion, and reduced the carrying value of the investments from N$1,54 billion to N$445 million.Kooyman said the actual loss or profit on the transactions would be known only when Absa sold its stakes in the four companies.Absa did not respond to a request for comment. -Business Report