I think all of that ultimately stems from the lack of consistent and coherent leadership and strategy over the last five years.

Absa Bank Faces Turbulent Times: A Deep Dive Into Performance and Leadership Challenges

Now, shares of Absa Bank have underperformed most of the major banks on the JSE this year. If we actually take a five year view, the stock has also been a laggard with investors choosing to bank elsewhere. The company is once again at the center of a management reshuffle having announced its sixth change to its CEO role in the last five years. And to discuss how unstable waters of Absa’s CEO chair have impacted its performance, I'm now joined by Grant Nader, the Portfolio Manager, Benguela Global Fund Managers, as well as Kokkie Kooyman, the Portfolio Manager for Denker Capital. Gentlemen, to the both of you, good afternoon. Kokkie, I want to start off with you. Simply answered, why has Absa underperformed its peers, not only this year, but also in the last five years from a stock price perspective? It's, it's sadly, it's actually underperformed, I think, since 2003. It's did quite a bit of studies and each time Absa was the cheapest of the banks and each time it's underperformed. But, but I think a large, initially it was first a bank that was being merged into four banks into one. And obviously that took time. And then secondly, in 2012, Barclays took a large shareholding and a controlling shareholding in Absa. And, and that brought a lot of change. I mean, the Barclays tried to get Absa to work on their culture, on their credit criteria, on their systems. And I think that inhibited Absa to a large extent. And post that original merger I was referring to and, and post the Barclays exit, you had periods where the bank was trying to catch up lost market share and trying to, you know, the focus was wrong. And I think that played a large role, specifically this time around, besides the exit from Barclays, it was also the retail bank, RBB in, in, in Absa that, that underperformed also larger bad debt stay. So long story, I think Barclays played a large role, but if you want to know the last few years, the main thing was on the retail bank where they underperformed. Okay. And so Grant to bring you in here to express your thoughts on the underperformance in Absa and to what degree the instability at the CEO chair has contributed. Yeah, thank you. I think Corky did sum it up beautifully with the Barclays history, but I think also in the last five years, you know, the Barclays split was, was prior to that, and that has been a hangover. So there's been this transfer and this repositioning, but there's been a lack of leadership. So there's, it's a fiercely competitive space. The likes of Capitech are taking significant market share and they're innovating incredibly when it comes to new products and transactions and fee-based income sort of transactional fees and the online presence that they have. And Absa to compete in the space, although it's something of an oligopoly in South Africa, it's actually fiercely competitive as well. And there's lots of new digital innovation taking place and they really are behind the curve there. And I think if you don't have a consistent leadership, you can't have a consistent strategy. As Corky said, they did chase a little bit. I think they opened the lending taps at the wrong time. All the other banks through COVID were pulling the reins in managing their risk. Absa was lending, trying to grow market share. And you're seeing that now play out in their credit loss ratios, which have yet to peak, whereas it looks like the other banks have already peaked. So the other banks are starting to lend again into the right environment and Absa's still managing the hangover from perhaps being a little bit too aggressive and trying to recapture market share. So I think all of that ultimately stems from the lack of consistent and coherent leadership and strategy over the last five years. Because one of the arguments that are being made is the fact that Absa has also been behind the curve when it does come to transformation. You would be aware of the arguments in the public regarding the lack of transformation of a CEO, particularly not allowing a black CEO the opportunity, as it were, to maybe implement a more change or better strategy for the bank. Corky, what are your thoughts here when it does come to the transformation debate and the performance of the bank thereof? Yeah, it's going to look as if I blame everything on the Barclays period. But the lack of transformation in the end also comes through to lack of people coming through. And especially on the candidates. And that, I think, also comes through again, back from the Barclays years. So I mean, I had quite a few conversations with Ari on that. And he said that in the Barclays years, they didn't have enough young leadership programs to bring through talent. And whether that be the case or not, but you could see that the correct talent wasn't coming through when it was needed in the leadership positions. And so the fact that you haven't got a black CEO now, or potential candidate, or there are not a lot of candidates, is a reflection of what's happened in the past five and 10 years. It's not the last two or three years. It takes a long time. Banking is an industry that you really need experience, you need talent. And so what the bank did five to 10 years ago is resulting in a lack of sufficient good PE candidates coming through. So Grant, I mean, if we look at it from a performance perspective, we have been drilling in quite strongly on what the share price has done. I know that both of you have also touched on the retail banking portfolio. But how have other parts of APSA, like corporate investment banking, or even what they're trying to do in Africa, compared to what their peers are also doing in the space? Has there been a stark difference in performance in this area of earnings as well? You know, they haven't done as well as Standard Bank, which has done incredibly well in Africa. But they've also, they've done quite well. Africa has been a very tough environment. We've had hyperinflation in some economies. It's been a tough landscape to navigate. I think they've done okay there. I think they are second to Standard Bank there, but they've done okay. CRB has been, also has done quite well. However, I think of late, there's some big lending, they're having some challenges around the lending book, and some of the non-performing loans coming through there. That was an area that focused on beefing up under Barclays, because they've lacked in the past. But that sort of restrengthening of that space, it hasn't built the kind of traction you would like to see. And once again, it's a very competitive space. And you've got the foreign players that still operate in that space. Sure. I mean, I remember from the unbundling process, at one stage, the bank wasn't called EPSA, it was called Barclays Africa. And then afterwards, it was rebranded EPSA, and the strategy was Africanacity. And then that Africanacity strategy fell away, and the tagline or the identity line for EPSA became Your Story Matters. So kind of, I don't know, it kind of gives an impression of a bit of confusion. Would you say that that is the case, Sukwoki? And in your view, why has life post-Barclays or strategy post-Barclays been so difficult to successfully bed down? Yeah, no, I think Grant actually summed it up fairly well earlier in that, you know, it was just leadership wasn't given the time to actually get into the position. Initially, it was Jason Quinn, who took over temporarily. Well, yeah, and then it was Daniel Minello who came in, and he wanted to change his strategy. And then it went back to, sorry, then it went to Jason temporarily, and then it was Ari. So all those things reflect, I think, as Grant said very well, it was just no consistency of leadership and being allowed to continue with the strategy that was started on. And I mean, as Grant said as well, the CRB has been the one part of the bank that did benefit from the Barclays transaction, and that's coming through very strongly because they've got the bigger balance sheet now, they are doing well. But also in Africa, they did have the Ghanaian bonds that defaulted, and they took a loss there, they also took a loss in Nigeria on the Naira. But again, that is partly a problem in that, if you look at the Stalin Bank, they have 23, 24 different African countries and more of a portfolio where abscess portfolio in Africa at this stage still has too few countries. So when something goes wrong in Ghana, it hurts them more than it does hurt Stalin Bank. But I think the bottom line is, as you point out, it's the inconsistency of leadership. And I think that must also reflect on the board, that the board hasn't either selected the right leadership or guided him and given him enough air cover in difficult times. Sure, which was going to come to, that was going to be my next question on your thoughts on the board in this process of the churn at the CEO table. And maybe if we take it, maybe look forward, and Grant, I'd like to ask you, what should the role of the board be? Or what should the board do differently this time around, as they do embark on a process to find a permanent new CEO? Yeah, absolutely. I think a lot of, you have to take a good look at the board and ask some questions, not only around the CEO appointment to the longevity of his position, but also where's the succession planning? You had Jason Quinn, newly appointed CEO at Ned Bank, you know, within the last year, and now you have them looking for a new CEO, where they had someone. So there's no one looking down the line saying, okay, here's someone we've identified five years from now, you're going to be the new CEO. We've got one now, these are the grooming, there should be three or four candidates that they're grooming with a three, five, seven year view toward these positions, toward this executive level management. And, you know, I don't see any evidence of that. There should be an obvious replacement from the CEO, if one leaves, there should be an obvious next in line. The fact that we're going to interims again, and we're looking again, tells me the succession planning hasn't been there for years, not just recently. And these things don't happen overnight, strategy doesn't get implemented overnight. Everything takes time in at this level, it's like steering a big ship. So you need to be thinking a lot longer term, then it appears that they are thinking from where I'm sitting. I mean, Koki, if you say that the performance of a stock, it doesn't start five years ago, you've taken us back down to 2003. My question then becomes, I mean, the challenges that we're talking about right now, particularly the lack of succession planning in raising leaders, who do we point the finger at? Who's to blame here? It's a good question. Yeah. And perhaps maybe let me exercise a little bit more courage and fine tune it. Are there specific names that could be to blame here? The former CEO, perhaps, Ms. Maria Ramos, the former chair, Ms. Wendy Lucas-Bull. Look, Wendy, I went back on my notes when all this happened, and we had interviews with Wendy as well during that turbulent period. And she was very aware of the fact that, in fact, the words were, we've got too much division inside the group in terms of executives, also on the board level. You recall, there were a lot of issues that were playing out at board level as well, of directors being accused of sexual harassment and not being considered for CEO role. I mean, being on the board, it must have been very difficult. And Wendy Lucas-Bull was a strong person and was well qualified. The battle to unify that board, and I think Maria Ramos also being a strong person, yeah, didn't leave a very good ship behind. I mean, of Barclays, APSA was losing market share consistently. And that's why, in the end, they appointed Ari Rotenbach, because under Ari, they actually did start this whole exercise of looking back, looking where they were losing market share, identifying why they were losing market share, and then running with that. And so then again, the board appointed Daniel Manella to come in without hearing from him what his strategy was going to be. And once he was in place, he wanted to change his strategy. So I think each time it comes back to the board, you've now got a new chairman, Selo, who's actually done a lot of work. So I think it's up to Selo now to make sure that he unifies his board. Firstly, he must get the board to agree on where should this bank go to, and then give much clearer instructions to the exec, specifically the CEO. So Charles Roussel now taking the position temporarily, he's got a lot of experience, I think he's highly regarded within the group. But again, for six months, while they were finding a successor, he can't make any strategic decisions, because that's not his role. But now, I suppose shareholders will want them to look externally as well. So that takes time. So the board is going to be very important. The example I've been using, sorry, I'm a bit of a soccer fan. But Manchester United, they've had six coaches, each worse than the other one, first Alex Ferguson. And you know, you can't blame the coach, you must blame the board, because they keep on appointing the wrong coach. And it's the same example here. Sure. And it's no coincidence, or perhaps it is a coincidence and irony that we're looking at the brand colours of the two entities that are the same, the red and white, I believe. Last question, really briefly, a grant to you in terms of the red flags that have been circulating about the former CEO of Everyday Banking, and allegations or assertions of possible compliance breaches, governance breaches. Does that worry you? Compliance always worries us. Corporate governance is of utmost importance in a bank. There really aren't any grey areas. You know, it's either you do it correctly, or you don't. So yes, it worries us. Obviously, we don't have any confirmation of anything. But when it comes to corporate governance and compliance issues, no grey area at all. So yes, it is a concern. All right. I believe that this is a developing story. And I look forward to speaking and getting to your thoughts as the story does develop. Unfortunately, I have to cut it right now because of time. But thanks so much for the insights, the history, and the context that you have been able to provide for us on this developing story. Grant Nader, Portfolio Manager over at Benguela Global Fund Managers, as well as Koki Koyman, Portfolio Manager over at Denka Capital.

Shares of Absa Bank have underperformed most of the major banks on the JSE this year. Taking a five year view, the stock has also been a laggard with investors choosing to bank elsewhere. The company is once again at the center of a management reshuffle having announced its sixth change to its CEO role in the last five years. To discuss how unstable waters of Absa’s CEO chair have impacted its performance, CNBC Africa is joined by Grant Nader, Portfolio Manager, Benguela Global Fund Managers and Kokkie Kooyman, Portfolio Manager, Denker Capital.

Banking on South Africa’s finance stocks 

Shares of Absa Bank have underperformed most of the major banks on the JSE this year. Taking a five year view, the stock has also been a laggard with investors choosing to bank elsewhere. 

Banking on South Africa’s finance stocks

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