With the action we've seen so far this year in the banks sector, 2001 seems a distant memory. In this space next year, you will be regaled with stories of corporate disasters, rapid mergers and rescues. But the new-look sector will be more stable and investors will probably have made far more money than they did in 2001.
This year has begun with crisis after crisis. But the worst of times can be the best of times - long-overdue consolidation is finally sweeping across the sector, which has already lost two of the bigger players in BoE and Saambou.
Standing out is Saambou, the biggest banking collapse in SA history. It was placed into curatorship in February, largely as a result of a run on the bank. The collapse painted a poor picture of SA banks' management. CEO Johan Myburgh's ambitious plans to diversify Saambou's business left it in trouble.
Not that 2001 was without its drama. Regal Treasury Bank will be remembered for many years as a glaring example of the blatant misuse of a banking licence, destroying wealth for depositors and shareholders. Regal, though, was an exception which had little to do with the pressures felt by the rest of the banking sector.
It was a hell of a tough year. A global economic slowdown meant the performance of the economy didn't seem able to hold up banks' revenues.
September 11 put into stark relief what was already there: a disturbingly bleak outlook for many of the world's large economies. The collapsing rand made trading conditions difficult; though banks scored out of translation gains, in dollar terms they are now even less of a presence in global banking than before. Despite the promises of many market commentators, the Banks index did badly last year.
On the plus side, declining interest rates meant greater credit demand, boosting bank lending. Private credit extension was up 13,5% in the year to March 2002. But it also meant lower margins. The recipe just didn't brew the kind of performance shareholders had hoped for.
Partly because of the fundamentals, but mainly because of sentiment, the Banks & Financial Services index lost 8,5% over the year. By April this year, the sector was on a recovery from an historic low p:e of 7. Consider that just four years ago, banks averaged a p:e of 25. Investors got it badly wrong.
But all the elements are in place for a substantial improvement in banking shareholders' fortunes this year. The consolidation taking place now (at the time of writing, Nedcor had taken on BoE and FirstRand was negotiating for Saambou) will enhance earnings. All the banks will be looking for pieces to pick up. The whole sector will benefit.
The benefits will come out of increased use of existing resources. Bank executives have long bemoaned the overcapacity in the SA industry. That doesn't merely mean there are too many players . Banks got onto the IT infrastructure ride enthusiastically during the boom of late Nineties and ended up with more capacity than the business warranted. Finally, that extra capacity may find a home.
" You have to rationalise and you have to get more out of what you've got. So now we are taking on things and starting new businesses," says FirstRand CEO Paul Harris. This year, FirstRand has taken on BoE's R12bn home loan book and is taking R4,6bn in assets out of Saambou. The costs are largely fixed, so such deals are easily value-enhancing.
But the challenge for FirstRand is to take advantage of its diverse range of businesses. With Metropolitan inside the FirstRand stable, its bancassurance model is way off its potential. Standard and Liberty have achieved far more, despite being entirely separate companies.
Also awash with capacity, Nedcor has searched offshore for extra volumes. In a ground-breaking deal, Nedcor signed up Swisscard, a European credit card business, as a processing client. This doubles the volumes for Nedcor's capacity, and its takeover of BoE will add more. The outsourcing deals are an unusual strategy, but one that could give Nedcor a serious revenue line in hard currency. Swisscard is just the first international partner, and more will follow to boost the bottom line. Its acquisition of BoE will keep CEO Richard Laubscher and his top team busy for some time. It will be a challenge to keep up the momentum on the processing front.
Absa, damaged by the first corporate disaster of 2002 - the collapse of Unifer - has a similar capacity issue. Dealing with Unifer has diverted its attention, but Absa is sure to play its part in sector consolidation. Its newly launched Absa Corporate & Merchant Bank is taking strides and will look to acquisitions to build its business.
But Absa's growth has to come out of cost-cutting, which it has proved it can do. Absa CEO Nallie Bosman, who took much flak over the Unifer debacle, is still pressing hard for cost savings, driven by a focused internal project looking for savings ranging from printer cartridges to advertising.
Which leaves Standard Bank, the FM's top banking pick for 2002. Standard has stayed out of the fray of banking consolidation so far, looking, but staying away from BoE and Saambou.
"Do you really want to be the biggest?" asks Standard Corporate & Merchant Bank head Ben Kruger. "Perhaps you want to be better rather than bigger."
Standard has been losing market share recently, but profits have grown strongly. And Standard has proved the most attractive of the banks to investors, with its share price outperforming the rest.
It is the most international of SA's big four banks . Standard Bank London is now a big hitter in global emerging-markets banking. More than a third of Standard's capital is housed in its offshore subsidiaries. While that provides great foreign translation gains when the rand collapses, as in the third quarter of last year, it also means pressure to get a return to that capital in hard-currency terms.
Much to the ire of SA investors, Standard has yet to get that right. And if the rand holds on to levels it has reached so far this year, Standard's balance sheet will lose significant amounts. The only way is to invest the money in acquisitions, and Standard is certainly looking for good international opportunities.
Its foreign ambitions are particularly focused on Africa and the next logical step is to launch full retail infrastructure in its African locations. New deputy CEO Myles Ruck has been spending a lot of time out of SA.
Other than the big four, the field of larger banks has been narrowed down to Investec alone, with Saambou and BoE out of the picture. Investec is still a darling of the market, and faces a huge challenge this year in a London listing for half its business. There will be no end of guessing at the potential windfalls that could arrive through the listing. Offshore capital will become cheaper for the group - the concern is always how that capital is spent. Investec has never got an acquisition wrong (though Fedsure gave it some indigestion) and the real test for the group will be its ability to apply that strength to the international market.
It's also rapidly picking up clients in London, where it has developed a full private banking franchise, taking the best lessons from its market-leading private banking in SA. Extending its franchise in other business areas is on the menu.
Beyond those five, the banks sector is now a decidedly more boring place than it was. The only banks of any interest remaining (now that Corpcapital and Brait have cancelled their licences) are African Bank, PSG Investment Bank and African Merchant Bank. And rumours of a takeout of AMB and PSG are flying.
African Bank is doing well on the rocky terrain of microlending, though its share price has been damaged in recent times by the travails of Unifer and Saambou . The challenge now is to sort out remaining regulatory issues and deal with unscrupulous debt administrators who have African Bank clients placed under administration and declared insolvent.
Beyond that, Sasfin and Mercantile are the only two listed banks. Sasfin is focused on rental and trade finance, with brokerage and wealth management divisions added on. It aims to be the entrepreneur's bank, and with the consolidation of the sector has a niche in which it can grow.
Mercantile needs direction. With the backing of Portuguese bank Caixa Geral de Depósitos, it has survived a choppy period for small banks but must still prove it has something to offer investors .
All the banks are now better homes for investors' money than last year, though Mercantile's business model must prove itself. There's a new race on.