nottheaverageactuary

Actuarial news and views from Cape Town and beyond

60 cents to buy TWO African Bank shares

1 Comment

Facts about African Bank:

  • Closing price TODAY is 30 cents, hence the title.
  • The bank’s CEO resigned on Wednesday as the bank said it needs to raise R8.5bn in new capital.
  • Return over the last 5 years is -98.44%. Negative!!!

Possible Solutions:

  • Intervention by SARB although some people that “ABL is not too big to fail”
  • Support by shareholders

Some people believe ABL won’t survive while others believe otherwise.

 

The Question is: Is this the right time to buy?

OR

Is ABL going to liquidate? And if so how soon? Is Monday a possibility?

 

Personally, I think that investors have lost confidence in ABL and as a result, ABL is going to liquidate sooner than many would have predicted. The question remains on whether ABL will survive the upcoming weeks never mind Monday.

 

Posted by Romeo

 

Related Articles:

http://www.fin24.com/Companies/Financial-Services/African-Bank-trades-below-R1-20140807

http://www.fin24.com/Companies/Financial-Services/Regulators-should-have-foreseen-Abil-woes-20140808

http://www.fin24.com/Companies/Financial-Services/Survival-for-African-Bank-looks-near-impossible-20140808

http://www.fin24.com/Companies/Financial-Services/Sarb-to-step-in-as-Abil-seeks-R8bn-20140806

http://www.fin24.com/Company/African-Bank-Investments-Ltd

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One thought on “60 cents to buy TWO African Bank shares

  1. So things have moved on since then – there are a number of measures taking place which makes this an interesting study in how a bailout can be handled.

    Basically, AB will be split up into two parts – the bad book, where it is expected that collection of outstanding loans will be difficult, is being bought out by the SARB, at a significant discount, and SARB will continue to try and collect these loans. The rest of the bank, the “good” book, is being bailed out by a number of big name banks.

    AB had an unusual business model in that it had few depositors: it made loans and financed them by issuing bonds rather than taking deposits. The fate of the holders of AB debt depends on the priority of their bonds: senior debt will likely be honoured at 90c to the Rand, whereas subordinated debt may be converted into equity, so those investors holding that debt will instead get shares in the new bank. More detail here.

    It seems that faith in the new, “good”, bank, is not high though, and investors are not flocking to finance it – AB is considering how it can attract depositors instead and may offer high interest rates to make that happen.

    There are also some question marks about whether AB is actually worth keeping alive, given its banking practices which are accused of being predatory.

    What do you think: was this bail out justified? And is the “good” bank a viable investment option?

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