REVIEW OF OPERATIONS // BANKING GROUP // RAND MERCHANT BANK

ALAN PULLINGER
CEO, Rand Merchant Bank

RMB

     
  Year ended 30 June   %  
 R million   2009   2008   change  
Normalised earnings   1 536   3 008   (49)  
Return on equity based on normalised earnings (%)  12   25    
Income before indirect tax   2 134   4 265   (50)  
Indirect tax   (79)  (61)   30  
Income before direct tax   2 055   4 204   (51)  
Total assets   275 097   296 433   (7)  
Cost to income ratio (%)  56.6   42.8    


Performance

The divisional results and comparatives are summarised in the table below:

  Year ended 30 June   %  
 R million   2009   2008   change  
Private Equity   1 028   1 846   (44) 
Investment Banking   2 207   2 059   7  
Fixed Income, Currency and Commodities (“FICC”)  804   1 483   (46) 
Equity Trading   (782)  (1 412)  45  
Other   (1 202)  228   (>100) 
  2 055   4 204   (51) 
*Restated to reflect international debt and investment portfolio losses under “Other”.


INTRODUCTION

RMB reported profits before tax of R2 055 million for the year to June 2009, 51% lower than the previous year. Throughout the period primary market activities ie client focussed advisory, financing and execution, showed good growth whilst most secondary market activities ie. proprietary trading delivered disappointing performances in challenging domestic and international markets.

The Investment Banking division (“IBD”) produced good results growing profits 7% despite the challenging base created in the previous year. The Private Equity and FICC divisions, however, were down 44% and 46% respectively on the prior year.

The Equity Trading division reported further losses of R782 million, largely attributable to the de-risking of the residual international trading portfolios and the default of Dealstream, a futures clearing client.

The performance of the residual legacy portfolios of the SPJ International business, which has been closed, is reported under “Other” though these positions are being managed down by IBD and FICC. A managed exit from these positions continues but losses of R775 million were reported though losses were lower in the second half.

Notwithstanding ongoing investments in systems and platforms, strong focus on cost management resulted in an increase of only 3% in operating expenses.