Banks fall to crisis-era low on shock Nene firing

South Africa’s six-member banking index plummeted by levels not seen since the 2008 global financial crisis after President Jacob Zuma fired Finance Minister Nhlanhla Nene.

The industry benchmark fell as much as 8.2% and was 6.5% weaker as of 11:23 am in Johannesburg. FirstRand, Africa’s largest bank by market value, tumbled as much as 10%, while Standard Bank Group, the biggest by assets, fell 9.1%. Barclays Plc’s South African unit dropped 9.2% and Nedbank Group retreated 7.3%.

“All the banks are built on confidence — removing the finance minister isn’t good for the country’s confidence,” said Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town, which oversees about $30 billion in assets.

Zuma late Wednesday removed Nene from his post after 19 months, without giving any reasons except to say that he would be switched to another key role. His replacement is David van Rooyen, a lawmaker who is little known to locals or investors. The rand dropped as much as 5.4 percent against the dollar after Zuma’s announcement, the biggest decline since September 2011, hitting a record low of 15.3857.

The shock move came less than a week after credit rating companies pushed the nation closer to junk status, citing concerns over a sluggish economy and rising debt as inflation and interest rates climb. Mining and manufacturing are already under strain because of plunging metal prices and power constraints.

“A debt downgrade would also lead to increasing funding costs which is not good for banks, corporate South Africa and the man on the street who is already over indebted,” Sanlam’s Rassou said.

Other financial services companies also felt the impact, with Johannesburg’s benchmark life assurance index down 5.2%. Sanlam, the largest South African-based life assurer, plunged 8.4%, the biggest drop since October 2008. Old Mutual Plc, which relies on South Africa for more than half its profit, slid as much as 3.6 percent, the most in more than a month.

Impairment worries

Investors may be concerned that the risk of increased impairments for bad debt is increasing, said David Shapiro, a director at Johannesburg-based money manager Sasfin Securities. “Are the banks lending to an economy that perhaps can’t handle it?” he said by phone. “You’d expect rising debt levels as inflation surges.”

The sell-off in banks could be a sign that foreign investors are pulling funds out of the South African market, Shapiro said. “They are being used as punching bags,” he said. “The banks are the ones lending to the manufacturers and miners.”

Investec fell as much as 3.7%, while Capitec Bank Holdings, which provides unsecured loans, dropped as much as 7.3%.

Rene van Wyk, the head of bank regulation in South Africa at the central bank, declined to speak about the plunge in the lenders’ stocks when called at his office in the capital, Pretoria. He referred questions to the central bank’s media department.

‘Never know’

“Investors are now more worried about a downgrade to junk status,” Wayne McCurrie, who helps manage R170 billion ($11.3 billion) at MMI Group, said by phone. “In South Africa, you just never know what’s coming. This increases uncertainty and the new finance minister is mostly unknown.

“The banks are the cheap part of the market,” he said. “It just shows that being cheap doesn’t help when sentiment turns.”

Brought to you by Moneyweb