Brian Kennedy (48)
Group Executive: Nedbank Capital
13 years’ service • MSc(Eng)(Elec), MBA, AMP (Harvard, USA)
Brian started his career in engineering before joining FirstCorp Merchant Bank in 1988. He joined BoE Merchant Bank in 1996 and was appointed Managing Director in 1998. He was appointed an executive director of BoE in 2001. Brian led Capital Markets following the merger and in November 2003 was appointed to the Group Executive Committee of Nedbank Group and Managing Executive of Nedbank Capital. He has 21 years of investment banking experience.
Anél Bosman (42)
Bedelia Theunissen (36)
John Chemaly (44)
Peter Lane (52)
Eureka Redelinghuys (49)
Mark Sardi (39)
Terence Singh (40)
Mark Weston (45)
Dan Zulu (45)
Nedbank Capital comprises the group’s investment banking businesses that together manage the structuring, lending and underwriting activities and all trading and broking activities in the equity, capital, interest rate, and foreign exchange and derivative markets.
With a full product spectrum that stretches from equity research to the provision of long-term project financing, Nedbank Capital is able to compete effectively in the southern African market.
Notwithstanding very difficult market conditions, as well as significantly lower income from private equity, earnings in Nedbank Capital increased by 7,7%. Equity continues to be well-deployed with return on equity (ROE) at 38,4% and costs well-controlled with the cost-to-income ratio at 52,2%. Increased client activity and market volatility enabled foreign exchange and interest rate sales and trading to produce very strong growth in earnings. The investment in skilled people and the development of sound risk, IT and finance platforms over the past few years, combined with a prudent risk appetite, have contributed significantly to these results and the achievement of a more balanced earnings profile in extreme market conditions.
The overall strategic orientation set out below remains the same for 2009 and beyond.
Within an integrated Investment Bank an effective portfolio is of utmost importance to weather the external storms. Within our trading business, both Treasury and Global Markets experienced very strong growth of 405% and 129% respectively, optimising increased volatility, widening spreads and increased client activity.
Debt Capital Markets (DCM) were adversely affected by widening credit spreads, which cost approximately R95 million. Equity profits were adversely affected by reduced volumes, sharply lower market levels and a reduced portfolio size as well as a reduction in book size and concentration risk resulting from management decisions in October when markets deteriorated.
The investment in and development of strong support functions such as risk, finance, IT and human resources over the past five years have contributed significantly to the results and the achievement of a more balanced, less volatile and robust earnings profile in extreme market conditions.
When Treasury, Equity Capital Markets (ECM) and DCM are combined to create a trading view of Nedbank Capital's business, trading represents 59% of Nedbank Capital’s earnings, compared with only 20% in 2007.
Interest income growth has been strong, growing at 71% and originated in the following business units:
Through all the financial turmoil experienced in the markets over the 2008 financial year, diligent credit control and risk processes helped limit the cost of credit-related impairments in the financial statements.
Impairments grew by R10,4 million, resulting in a credit ratio of 0,06%, which is slightly higher than the 0,05% at the end of 2007.
Nedbank Capital’s ability to maintain or grow non-interest income was hampered by the following four significant contributing factors:
Capital’s expense base grew by 10,4%, which includes R330 million of indirect transfer pricing growth of 17,1%. Nedbank Capital's own cost base grew by 7,1% in an inflationary environment where CPIX was at 12% at the end of December 2008, indicating adequate action by management to curtail significant spending in difficult circumstances.
Nedbank Capital’s effective tax rate of -2,67% was driven by:
The effective use of capital has been a continued focus for Nedbank Capital. The economic profit contribution has increased from R778 million in 2007 to R806 million in 2008 and now contributes 45% of the total economic profit generated by the group, compared with 29% in 2007.
Nedbank Capital’s return on risk-adjusted capital (RORAC) remains healthy at 38,1%.
Nedbank Capital’s results are highly dependent on levels of corporate activity and new prospects, as well as volatility in foreign exchange and interest rates and levels of commodity prices and equity markets.
With available liquidity, a full-spectrum service offering, and highly skilled staff, Nedbank Capital remains well-positioned to participate in Corporate and public sector activity in the region.
While the business employs a broad and diversified set of risk monitoring and risk-mitigating techniques, these systems and their application cannot anticipate every financial outcome or the timing thereof.
The global economic crisis could have a negative impact on the performance of Nedbank Capital and the likelihood of higher impairment levels will constrain growth.
Each business in Nedbank Capital has clear strategies and plans to take the business forward and contribute to the development of the region. The leadership team remains vigilant and ready to respond to the challenges ahead.
Nedbank Capital seeks to provide seamless specialist advice, debt and equity raising and execution, and trading capabilities in all the major South African business sectors. Principal clients include the top 200 domestic corporates, parastatals, leading financial institutions, non-South African multinational corporates and clients undertaking major infrastructure and mining projects in Africa, as well as emerging BEE consortiums.
Debt Capital Markets deals with securitisation, credit derivatives, the asset-backed conduit and bond origination businesses and provides interest rate solutions.
Equity Capital Markets, the equity derivatives operation, provides hedging and structuring services to corporate, institutional and retail clients. This division exploits the synergies between trading and structuring equities and facilitates BEE transactions.
Global Markets focuses on providing the bank’s client base with currency, interest rate derivative and bond-related products as well as proprietary trading in the various markets.
Investment Banking includes the group’s corporate finance, private-equity and coverage teams.
Specialised Finance provides debt-financing solutions with a portfolio of services, including project finance, leveraged debt, acquisition finance, structured trade and commodity finance and structured financial solutions. The division also has three sectoral specialist teams that serve as Nedbank Capital’s knowledge hub in energy, infrastructure, and mining and resources. In addition, the division covers retail, healthcare and diversified industrials.
Treasury is the group’s funding interface with financial and investment markets, locally and internationally. All the group’s local and foreign currency funding requirements are executed and managed through this unit.
Nedcor Securities (Pty) Limited is the institutional equities business of the group. It provides research, sales and trading services to major institutions.