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Friday May 18, 2012

Golf estate deals come back to haunt Investec

Investec was reducing its exposure to commercial property after a "disappointing" set of results for the year to March, the specialist banking group and asset manager said yesterday.

The company, which is listed in both Johannesburg and London, has in the past few years got involved in frothy property deals in Australia and the UK. In South Africa, Investec was a major funder of golf estate developments.

Investec chief executive Stephen Koseff said the group had done well in the year under review in pulling out of property exposure in Australia and had found better quality property deals in the UK.

Koseff said the combined consolidated full-year results of Investec Limited and Investec plc were "disappointing but reflective of very challenging market conditions".

Investec's full-year earnings fell by 26 percent, mostly due to bad loans in Australia. The Australian unit made a loss as a result of a significant increase in impairments on the property loan portfolio, with the majority of these loans sold by year-end.

Total impairments in Australia more than doubled to £67.9 million (R900m) from £30.2m the previous year.

The group's overall impairments on loans and advances increased by 2.2 percent to £325.1m.

These losses caused Investec's adjusted earnings a share before goodwill to decrease by 26.4 percent to 31.8p.

Headline earnings a share slid to 26.8p from 37.7p. Operating profit fell 17.4 percent to £358.6m.

But third-party assets under management, including assets acquired from the Evolution Group, increased by 8.9 percent to £96.8bn - an increase of 14.5 percent on a currency-neutral basis.

Customer deposits increased 3.7 percent to £25.3bn. Core loans and advances decreased by 2.8 percent to £18.2bn.

The Investec board proposed a final dividend of 9p an ordinary share, equating to a full-year dividend of 17p, the same as was declared the year before.

Koseff expected the current tough trading environment to dampen investment activity levels but was optimistic the group would do better.

"It's still going to be a tough space but we do see impairments normalising," he said.

He said Investec's focus would continue to be on internationalising its offerings and implementing a single bank structure.

PSG Konsult analyst and stock broker Dimitri Mitropapas said it seemed Investec was struggling to do business in Australia. But he said the commercial property that the group carried on its balance sheet was the biggest drag.

"They are still carrying a lot of golf estates on the balance sheet and they got into hectic property deals in the UK. They paid too much and now it's haunting them," he said.

Mitropapas said because the property market had not started picking up, Investec could not get rid of these assets because it would lose more if it sold them at current valuations.

Shares in Investec Limited, which controls most of the group's southern African and Mauritian businesses, fell 2.31 percent to close at R42.35 on the JSE yesterday.

Investec plc, which controls most of its overseas units, fell 2.71 percent to R42.37.

Cape Argus

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