Shareholders in FNB's parent company are getting the largest dividend the group has ever paid, out of the first year its profit has gone backwards in six. Both of those describe the same set of results, published on Thursday, and what connects them is a bill from Britain.
Start with what a provision is, because the year turns on one. When a company knows it will probably have to pay customers back but cannot yet know the final total, the accounting rules make it set the money aside now and take the knock to this year's profit. Nothing has actually left the building. FirstRand has done that for car loans sold in the United Kingdom.
The bill from the car dealerships
Britain's Financial Conduct Authority spent years working out whether motor finance customers were told enough about the commission their dealer was earning on the loan. In March it published the scheme that settles who gets paid back. FirstRand's British lender, Aldermore, sold those loans, and the group now carries a gross provision of £807 million against them. Of that, £518.4 million was added this year on top of what had already been put by. Even the total is provisional: legal challenges to the scheme reach court between December and February, and FirstRand has deliberately left their effect out of the number.
Three sets of earnings, one year
The reported figure is R39.7 billion, down 5%. Chief executive Mary Vilakazi called the performance disappointing in the results statement itself, which is not a word companies often commit to writing about their own year.
Take the British provision out and the same twelve months read differently, which is why FirstRand publishes both. Earnings on that basis rose 10%, and the South African and broader Africa businesses on their own were up 13%. Return on equity tells the story twice as well: 18.3% with the provision counted, 21.5% without it, and both inside the range FirstRand tells investors to expect.
Underneath the arithmetic the big South African franchises did what they usually do. FNB and RMB each grew earnings by double digits. WesBank went the other way, with bad-debt charges on its vehicle book up by more than a quarter.
The dividend follows the second version rather than the first. Shareholders get 539 cents for the year, a record. The 280-cent final slice is payable in October.
The bank is leaving the British consumer market altogether. Aldermore is up for sale, the information memorandum and data room are open to bidders, non-binding offers are due by the end of September and binding ones by the end of December. The R3.7 billion written off the value of what FirstRand once paid for the business is already in this year's numbers.
