It is never pleasant to see a South African business make an ignominious retreat from a developed market. Sadly, FirstRand has raised the white flag and decided to exit from its UK consumer finance businesses Aldermore Bank and MotoNovo.
FirstRand must regret choosing to buy a bank in the UK rather than in Africa. Its archrival, Standard Bank, is still much less profitable than FirstRand in the core South African retail market. But Standard Bank’s African footprint pushes up the group’s overall return on equity (ROE). Without that, it might even be considered as underwhelming as sector laggards Absa and Nedbank.
FirstRand has chosen to grow organically in Africa, and its ex-South African footprint accounts for a modest 10% of assets.
Its main acquisition outside South Africa was, on the face of it, rather quirky. In 2017, it acquired Aldermore, a UK challenger bank established in 2009 with a focus on mortgage and asset finance. Since then, the UK has consistently accounted for about 10% of group earnings.
The attraction of Aldermore was that FirstRand’s not particularly profitable British used car financing business, MotoNovo, would have access to cheap retail deposit financing.
MotoNovo was set up by FirstRand’s WesBank unit, for many years South Africa’s largest vehicle finance lender. It believed that MotoNovo would be able to disrupt the rather sleepy British motor finance sector, which it has done to some extent.
FirstRand says it believes Aldermore and MotoNovo (which together fall under Aldermore plc) are both good businesses, even though neither has reached FirstRand’s ROE hurdle. But the group has prudently decided it is going to be extremely difficult to reach these targets under the British regulatory regime.
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