Is it on, is it off? I spoke to someone who has been involved in the Financial Sector Charter negotiations last week and they told me it was still on. I was told that the once empowered, always empowered details had been finalised and that signatures were imminent. My most excellent friend Leila told me what she knew - which is that it was still on.
But yesterday the City Press reported that banks were contemplating pulling out of the charter.
The threatened walkout by the banks appears to be over a disagreement with social partners, most notably labour and NGOs, over ownership targets. This disagreement has effectively rendered the charter paralysed, with no yearly report filed to the Financial Sector Charter Council since 2008. Civil society wants the black ownership targets of financial services raised from the current level of 10% to 15% by 2014. But the industry frequently argues that international banking regulations mitigate against this.
The same perennial argument that keeps on rearing its ugly head. The author of the City Press article, Thebe Mabanga, puts the issue in the friendliest possible way (if you want a more complicated explanation take a look at my post from April, 2009)
This is because in banking ownership shareholding above 10% confers a status known as shareholder of reference. This means that in the event that a bank needs to be recapitalised, as happened to some American and European banks during the financial crisis, a shareholder of reference has to contribute according to their shareholding.
Thus if, say, Standard Bank were to go to the wall and required a R1 billion bailout, the Industrial Commercial Bank of China, as a 20% shareholder, would have to stump up R200 million. A 15% shareholder would need R150 million, the kind of sum that empowerment partners – who often have to borrow to finance their deals in the first place – would struggle to raise. Smaller shareholders do not face such obligations.
But labour has refused to budge on the matter, first staging its own walkout from the charter in 2008. It argues that the financial crisis showed that government bears the ultimate cost of a bailout. It further argues that the probability of a bailout being needed is low.
Thebe informs us that the banks have approached Pravin with a new charter that they are willing to abide by.
This has gone on too long now. The FSC is completely vital to South Africa's future. It is a far more fluid document than the DTI's codes (or any of the other annoying transformation charters). Most importantly - it is the only one that adequately deals with the once empowered, always empowered rule. End this rubbish now, let's move on
AND NOW ONTO A LITTLE ED RUMOUR
I got a frantic phone call from a concerned citizen the other day. She informed me that she had heard (still a vicious rumour) that a certain financial institution who shall remain nameless for now is/or is going to take ED money from their clients and then loan this money to black businesses. The deal would go along these lines
- The financial institution will take 15% of this money for admin purposes (which seems to be the industry norm for ED providers)
- They'll loan the balance to black businesses at prime
- They'll write a lovely letter to the ED donor saying "here are your 15 points etc"
Whilst I like the idea there are a few problems
- Can a financial institution with a banking licence loan money to other people on behalf of others. I was told that they'd need some sort of fund to do this
- What happens to the interest and the repayment of the capital amount. The money being loaned does not belong to the (let's call it a bank), it belongs to the ED contributors. Surely the interest and repayment of the capital amount must be paid over to the ED donor (I don't want to call them that). I know that a repayment of a loan messes with the long term ED points but money is never free.
I'd like to see this concept develop but it does need a mountain of refinement before it goes out.