Bloomberg News

FirstRand Nigeria Entry Stalls Amid Takeover ‘Dislocation’

September 12, 2011

(Updates with closing share price in ninth paragraph.)

Sept. 12 (Bloomberg) -- FirstRand Ltd., Africa’s second- largest bank, hasn’t met its two-year goal of expanding into Nigeria, unwilling to meet sellers’ price demands amid a push by financial regulators for industry consolidation.

“There’s a dislocation still in that market between the ‘bid-offer’ spreads,” FirstRand Chief Executive Officer Sizwe Nxasana said in an interview in Johannesburg on Sept. 9. “You have banks that were declared by the central bank as distressed and broken. But look at their equity markets and they still trade. It’s a market that is completely inefficient.”

FirstRand, which announced in May 2009 that it intended to expand into Africa’s biggest oil producer, ended talks to buy control of Lagos-based Sterling Bank Plc in June. Since then, Nxasana said he has continued looking for targets, returning last week from the country, where FirstRand has set-up a representative office.

Nigeria’s 10 largest banks trade at 10.7 times reported earnings on average, higher than the 7.59 times for the 46- member Bloomberg Europe Banks and Financial Services Index. The economy of Nigeria, which has Africa’s largest population with 150 million people, is set to surpass South Africa as the continent’s biggest by 2025, according to Morgan Stanley.

Buying Opportunity

Nigeria’s banking industry is trading at its lowest in three years, according to Adesoji Solanke, a Lagos-based analyst with Renaissance Capital. The average price-to-book ratio for the country’s banks fell to 0.97 from 1.31 a year earlier.

“The longer it takes them to get in, the more expensive banks will price themselves for any deal,” said Solanke. “The quality of the book value is getting increasingly better than it was a month ago or a year ago.”

A 0.55 price-to-book ratio for the Bloomberg Europe Banks and Financial Services Index reflects the sovereign debt burden of those lenders, he said.

Central Bank of Nigeria Governor Lamido Sanusi in 2009 fired the CEOs of eight of the nation’s lenders, pumped the equivalent of $4 billion into ailing institutions and set up an entity to buy bad debts. Sanusi, 50, said he wants the number of banks reduced to 19 from 24 with companies run as public institutions and not privately held family businesses. In 2005, the country had 89 banks.

FirstRand fell 2.2 percent to 20.05 rand in Johannesburg, cutting the company’s market value to 113 billion rand ($15.2 billion). The six-member FTSE/JSE Africa Banks Index declined 1.3 percent.

Nigerian Acquisitions

Nigerian banking acquisitions have been focused on local lenders, according to Solanke, with Sterling Bank last month agreeing to buy Equitorial Trust Bank Plc, one of eight lenders bailed out in 2009 by the central bank. Access Bank Plc plans to acquire Intercontinental Bank Plc while Togo-based Ecobank Transnational Inc. has proposed purchasing Oceanic Bank International Plc.

Standard Bank Group Ltd., the continent’s largest lender, in September 2007 combined its Nigerian branch with Lagos-based IBTC Chartered Bank Plc, the nation’s top investment bank and money manager, and bought control of the combined company for 2.8 billion rand ($380 million).

It has since opened 150 new branches to increase its outlets to 180. The lender plans to add 20 branches a year and increase its share of the consumer banking market to 10 percent from 2 percent, Standard Bank Deputy CEO Ben Kruger said in an interview Sept. 9.

Hitting ROE Target

Standard Bank’s investment in Nigeria produced an 8 percent return on equity before adjustments in the first half, down from 13 percent a year earlier, as the company paid for computer systems and staff and invested more capital to fund a 20 percent increase in loans. Over the next 18 months, Standard Bank expects returns to increase, Kruger, 49, said.

The company returned an overall 14.5 percent on equity in the first half, up from 13.5 percent in the first six months of last year. Standard’s shares have dropped 12 percent this year, the worst performer on the FTSE/JSE Africa Banks Index, while FirstRand has added 2.8 percent.

FirstRand won’t sacrifice returns, said Nxasana, who is 52.

“We’re particularly focused on not diluting our ROE so we understand there are different ways of creating value,” Nxasana said. “We’ll be looking for acquisitions, but we’re unlikely to write a big check in any acquisition that we make.”


FirstRand’s return on equity improved to 19 percent in the six months through December from 18 percent in fiscal 2010, within its target of 18 percent to 22 percent. ROE may remain within target when the bank releases results for the year to June 30 tomorrow as “nothing has really changed since the half year,” said Sam Moss, FirstRand’s head of investor relations.

Consolidation of Nigeria’s banking industry means regulators would prefer foreign companies to invest in existing lenders, making it difficult to start a new operation, Nxasana said.

FirstRand has also been looking for acquisitions in Ghana, where the central bank is trying to drive mergers and acquisitions to limit the number of lenders rather than grant new banking licenses, Nxasana said.

“You need patience and our strategy also requires patience,” he said. “We’re not looking at moving our earnings needle from these opportunities that we are looking at.”

--With assistance from Renee Bonorchis in Johannesburg. Editors: Vernon Wessels, Dylan Griffiths.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at

To contact the editor responsible for this story: Gavin Serkin at

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