“Good” African Banks Rating Hangs in the Balance
Moodeys Threaten to Lower ABIL’s Rating Again
When African Bank got into such trouble last year with the run on selling shares a curator was appointed and trading in ABIL shares halted on the JSE before they could hit 1 cent. Once appointed the curator Mr Winterboer began the process of trying to save what was left of African Bank and its retail companies. Quickly the bank and its loans were split into “good” and “bad” in an effort to save some of African Banks reputation. In fact, not too long after the split it was announced that trading on the JSE might resume as soon as April this year.
The Good, the Bad and the Audit Report
April has arrived and African Bank say they are holding back on JSE trading for a while longer to allow for an internal audit of ABIL’s finances to be completed. It is expected that the audit will be done by May 2015.
International Ratings Agency Moodeys has issued a notice saying that the expected losses and recovery rates for ABILs creditors (once the restructure of “good” and “bad” is finalized will determine if they lower African Banks rating yet again. Moodeys are seemingly warning that they are not feeling too positive about things though and are poised to change the rating further in line with the results of the publicly release information memorandum that will be released after the internal report. On the other hand they may find that the results have been better than expected and keep the rating the same or raise it. It all hinges on how well the curator and his team have been doing in saving the sinking ship.
Since the collapse African Bank has managed to continue trading but with less credit granted and with a hack and slash of some of it’s (ABIL’s) smaller companies. Around the country staff have been laid off as ABIL has tried to contract to save what it can.
What went wrong?
The collapse of African Bank came in the wake of poor returns on lending (people were not paying what they had borrowed) and the sudden loss of key leadership. African Bank said they needed a whole lot of investment again to balance the books and that their shareholders were not going to be making money. When the big boss left at the same time, investors got nervous and began to shift their investments elsewhere, which started a snowball of jumping ship and share selling. Interestingly after the share price had fallen as low as 21 Cents and trading was stopped some investors, like Investec, decided to put even more money into the organisation to try save it (and presumably make a profit in the long run).
Does it matter?
The question is if the report comes back and is not as positive as hoped will Moodeys dropping their rating have any more influence on the future of ABIL or will it merely be a reflection of it’s performance? Would it just be one more nail in the coffin or would things be so bad it wouldn’t matter?