The demise of Saambou on Monday, when the JSE Securities Exchange suspended trading in the bank's shares after it was placed under curatorship last Saturday, leaves another devastating trail of bad corporate governance.
The death of Saambou began with Investec's global ambitions and its relentless pursuit of a London listing. To realise these ambitions, the messy cross-holdings Fedsure and Investec had in each other needed to be removed. Fedsure had reached a stage of near-collapse. Its computer systems were in such a shambles that it took up to six months to provide policyholders with information about their policies.
After performing a due diligence investigation and securing Fedsure - at the expense of other bidders - Investec, with monotonous regularity, decreased its offer price several times, presumably as further problems were uncovered. This leads me to question the competency of the officials involved in the initial due diligence investigation.
Surely the correct procedure is to conduct a proper and careful due diligence investigation and then agree on a fair, reasonable and unchangeable price? And with an acquisition come benefits and risks, responsibilities and rights. One would think that it is totally unreasonable to secure an acquisition target and then change the purchase price on an ad hoc basis. Unless, of course this was agreed on beforehand.
Having carried out a proper due diligence investigation, there should have been no unwelcome surprises. The situation was contrived to suit Investec. But the market won't be fooled - Investec's share price is taking pain.
How does all this contribute to the demise of Saambou? It turns out that 500 000 Fedsure policyholders owned 38.7 percent of Saambou. These policyholders have subsequently been sold to Capital Alliance (together with 3.2 percent of Saambou). But it appears that 35.5 percent of Saambou is now, or was always, held by other former Fedsure policyholders in what is called Investec Employee Benefits. Investec ended up with a controlling stake in Saambou. "Plan A" was to sell it, but Investec was not enamoured with the R10 to R11 it was offered. I wonder what "Plan B" was? The bulk of Saambou's business is a very nice mortgage loan book and an acceptable asset loan book. Fedsure policyholders are going to take the loss on the Saambou shares, but what will happen to the Saambou crown jewels? Investec could, of course, have saved Saambou by throwing its full weight behind the bank.
There are other factors that contributed to Saambou's demise. The untimely sale of about 1.2 million shares by Johan Myburg, the chief executive officer, and Charles Edwards, an executive director - perhaps in the belief that trading conditions had soured - sent the share price into a downward spiral. Shortly after these sales, Saambou published a trading update or profit warning.
Also behind Saambou's reversal of fortunes was the government's unilateral decision in June 2000 to change the basis on which microlenders were allowed to make deductions from Persal, the government payroll system. The market felt that Saambou officials had been less than frank and should have been able to estimate the effect of this change on earnings long before the announcement on September 17, 2001.
Microlending is morally questionable and in Unifier's, and very possibly in Saambou's case, it was scandalously and recklessly conducted.
Saambou was also losing money on its online bank. 20twenty needed 100 000 customers to break even and at last count had only 35 000. The burn rate (cash flow cost to Saambou) of 20twenty in the last months of 2001 was R7 million a month.
The rapid decline in Saambou's share price finally aroused rumours about its liquidity and triggered a run on the bank. Apparently, R1 billion was withdrawn last Thursday and Friday, resulting in Saambou being placed under curatorship.