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FINANCIAL: Mutual: Pining for Pinelands

 



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ONE has to ask whether Old Mutual – the SA grown financial services giant listed in London – would not have been better off fortifying its own backyard over the last decade rather than pegging out a sprawling global empire.

Admittedly the old HQ in Pinelands could never – by any stretch of the imagination - be considered the epitome of a fashionable international financial services hub.

But Pinelands looks a sturdy centre these days after the global financial crisis has lain waste to so much value in Old Mutual’s sprawling offshore empire.

It would seem former Old Mutual boss Mike Levett’s determination in the late nineties to grow the business into a serious international player has come at a huge cost to the asset register and to the corporate reputation.

One may be tempted to argue that if Old Mutual concentrated on its Southern African business the group might have been in far better financial shape than the sprawling business is today.

Here are some interesting facts to mull. When Old Mutual listed in London in 1999 (at time when the SA operations were by far the dominant force) the group carried a market value of R39 billion or 1125c/share.

Today Old Mutual – after spending upwards of R10 billion on acquisitions – is worth R42 billion - only a smidgen more than it was at listing nine years ago.

Another interesting statistic is that Bellville based Sanlam has closed the market value gap on Old Mutual.

Sanlam, which has concentrated mainly on building its local presence, now holds a market value of R33 billion.

Three years ago Old Mutual was worth around R30 billion more than Sanlam!

What’s more is that the Old Mutual share price is actually down more than 30% to around 770c on the JSE from its initial listing price.

So ultimately shareholders – even taking into account dividends - have seen no gains in value from Old Mutual’s endeavours to build a massive global footprint. Certainly the old adage ‘bigger is not necessarily better’ could well apply here.

Interestingly Old Mutual’s website claims the group’s strategy is to grow the scale of its businesses internationally, but not at any cost.

“We have a disciplined approach to expansion and will move only into markets which meet our investment and risk criteria and where we believe there is the potential for us to grow profitably.”

Frankly, this strategy hardly seems to apply to the group’s US business, which has been a capital guzzling laggard for a number of years now.

Aside from fundamental issues in the US, Old Mutual’s American business took hits from exposure to mortgage lenders Fannie Mae and Freddie Mac as well as holding exposure to the AIG group.

Ironically some years ago it was recently departed Old Mutual CEO Jim Sutcliffe that said: “Our strong capital position and powerful set of international businesses will allow us to grow even if economic conditions continue to be turbulent.”

At the moment it would seem Old Mutual is more likely to shed offshore operations than be using the current market to make selective acquisitions.

Yup, it may well be a case of getting strategy rather mixed up - buying in the good times and trying to sell or patch up in the bad times.

Finweek, the weekly business publication, quoted a former Old Mutual director, who suggested the best solution to Old Mutual’s current woes would be to return to its home base.

That would be unlikely after all the effort (and capital) Old Mutual spent in building an international presence. In addition, selling off financial assets in the prevailing economic turmoil and jittery investment climate would not be prudent.

But imagine if Old Mutual had stuck to its Southern African roots. Currently Old Mutual SA is in fine fettle, and still enjoys a leadership position across life assurance, short term assurance, banking and wealth management.

It would seem safe to assume Old Mutual SA’s balance sheet is still fairly robust.

What an opportunity Old Mutual would have had now to accumulate world class assets at bargain basement prices from its humble Pinelands base.

Instead we have to look back at with some dismay at the high price of global expansion – 2.2 billion pounds paid for United Asset Management in the US, $635 million paid for Fidelity and Guaranty Life and the 4 billion pounds paid for Scandinavian financial services business Skandia.

Mind boggling stuff…


 
 
 
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