What's going on?
Shares of specialist bank Investec rose by 9% on Friday as it announced plans to split off its asset management business (where it invests money on behalf of pension funds and corporations, for example) and list on the stock market as a separate company.
What does this mean?
Investec believes that there aren’t many synergies between its asset management segment, which looks after $141 billion, and the rest of the firm – i.e. Investec doesn’t think asset management compliments the bank’s other activities.
The split mirrors that of Investec’s South African peer, Old Mutual, which’ll cleave off its asset management business by the end of the year, and Germany’s Deutsche Bank, which split off its asset management businesses, too, in March.
Why should I care?
For markets: Breaking down to build something bigger.
When Investec’s asset management business hits the stock market, investors are likely to value its shares similarly to those of other similar businesses. Asset managers usually have higher profit margins than typical banks (36% vs. 20%), thanks to relatively predictable revenues (which are usually a set percentage of the money the company looks after) and low costs. As a result, their shares are likely to be valued above the sector’s average, relative to their profits. Investec plans to hang on to a small stake in the business once it’s separated, so any rise in its value would benefit Investec’s investors, too.
The bigger picture: From South Africa to the world (to the gutter).
Investec (which has shares listed both in Johannesburg and London, though its asset management business will only list its stock in London) is joining Old Mutual in shifting its focus from South Africa – and retailer Steinhoff International. Following a series of international acquisitions, in 2015 Steinhoff moved its shares from South Africa to Germany, hoping to attract globally-minded investors. But the stock’s since lost 97% of its value, after its managers had been found cooking the books and an accounting scandal suggested the company was a house of cards.