Investec drops the pilot. Does plain sailing or a ship wreck lie ahead?
It is hard to imagine the bank without the charismatic Stephen Koseff at its helm
In 1890, British magazine Punch published a cartoon by John Tenniel depicting German Chancellor Otto von Bismarck dressed as a maritime pilot stepping off a ship while young German emperor Kaiser Wilhelm II watched from above the gangplank looking unfazed and unconcerned.
The cartoon was titled Dropping the Pilot and followed Bismarck’s resignation after being the central figure not only in Germany but in the whole of Europe for almost half a century.
The cartoon was so prescient that it’s republished in almost every history textbook about the period, and it’s often depicted as the moment Germany started down the wrong track.
There is something of the same quality about Stephen Koseff’s departure from Investec (which only actually happens mid-2019), the company he was instrumental in founding and led so magnificently for almost 30 years.
Of course we don’t know whether the decision to split the company into banking and asset management divisions will turn out to be a crucial misstep the same way dropping the pilot was to European politics, although frankly, I wonder.
However, this is the topic of a different discussion, since I think it’s worth focusing for a moment on Koseff’s legacy, which is really worthy of reflection.
I must acknowledge I have a slightly privileged view since Investec and Investec Asset Management were for a time both clients of my wife’s business. Her view of what Koseff did and how he did it is enormously laudatory, balancing perhaps my own slightly testy but respectful relationship with Koseff over the years.
Despite the occasional squabbles, there really is no doubt in my mind that Koseff was a wonderfully odd, fabulously adept and deeply innovative CEO. What makes him different from the polished banking CEOs around the world and their adopted air of munificence? Practically everything.
First, as great CEOs often are, he surrounded himself, or was surrounded, by some formidable people, notably Hugh Herman and Ian Kantor. Second, his smart, demanding intellect is visible everywhere in the business.
One of my colleagues who has followed Investec for years once told me the richer Koseff got, the more pronounced his Benoni accent became. It wasn’t just the accent. Koseff’s great skill has been his unique form of gruff friendliness and his palpable good sense.
In the early years, this translated into a focus on helping the kind of people who were likely to become rich or richer, which would in turn help grow the bank.
Capturing that self-fuelling cycle led to all kinds of banking innovations, including personal bankers, branchless banking, and the development of an entrepreneurial outlook among staff, not for its own sake but in order to understand the needs of entrepreneurial clients.
That in turn led to an organisation focused intensely on its staffing. Human resources is normally a kind of backwater department in most businesses in charge of functional issues such as leave and making sure people get their salaries.
But for Investec, the department was seen as a competitive advantage, and the head of human resources was always, if I understand correctly, either on the exco or the board.
At one point, Investec was mockingly characterised as Gattica, the science-fiction movie in which only perfect human specimens got to fly to the off-world planets, and it is noticeable how many sporty, good-looking A-personality types work there. For every senior hire, Koseff himself was the final sign-off.
My wife Jennifer says Koseff understood his clients in the way modern algorithms try to understand clients but typically fail.
Not only were the staff hired with clients in mind, but the business was structured around their needs: the treasury division was designed to help entrepreneurs handle their balance sheets; banking was there to help entrepreneurs grow their businesses; corporate finance was there to help conceptualise and put into practice effective corporate structures, or acquisitions, and ultimately asset management was added to help entrepreneurs invest their fortunes.
The bank struck gold with two major businesses, Bidvest and Growthpoint, but its bread-and-butter was and is the fleet of smaller businesses it helped along the same path.
And once SA opened up to the world, Investec began following its clients to London and Australia, gradually setting up standalone businesses there. And locally, Investec was early into black empowerment, ever conscious of where the next batch of entrepreneurs might emanate.
Aggressive marketing and sports sponsorships have also been part of the picture.
The result has been one of those extraordinary business expansions.
If I’m making this sound like an unbroken unfolding of successes, then I’m mischaracterising the company’s history because there were plenty of setbacks and grand mistakes.
Investec was on the edge of a major crisis during the rand’s collapse in 2000. Its businesses in the US, Asia and Israel have been closed or cut back dramatically. Its insurance investment, Fedsure, came to an unhappy end.
Koseff’s own scrappy style sometimes led to high-profile battles with prominent Johannesburg northern suburbites. There has always been a slight whiff of the sharp operator about the bank.
My own criticisms of the bank come from a completely different angle.
I just can’t help thinking the bank missed a huge trick over the past decade. Investec’s share price is roughly the same as what it was in 2011.
This, for a bank in the modern era, would be totally unremarkable; it has been a bruising, blistering decade for banks, even or perhaps especially specialist banks. But in Investec’s case, this static share price has been accompanied by an amazingly steady turnover growth.
Before the global banking calamity in 2008, Investec’s share price was booming, and its turnover was increasing sharply. After the dip, the growth was slower, but it was more or less like clockwork, rising from UKP1.3bn to UKP2.3bn today.
The analysts who follow the bank are uniformly complimentary, but somehow, Investec has failed to capture the minds of investors. The entrepreneurs’ bank disappeared into hibernation.
In this past decade, Investec’s acquisitions have been few and far between and modest in size. This is probably completely unfair because they are such different businesses, but my comparators for Investec are the Swiss bank Julius Baer and the Australian bank Macquarie. Over the past five years, Julius Baer and Investec have matched each other's largely static trajectory, but Macquarie’s share price has doubled.
That reflects somewhat its infrastructure focus, but also its ambition. Macquarie is valued at three times its assets; Investec is valued at barely more than the value of its assets.
The result of this hibernation has been that Investec is now stuck largely in two countries, both of which have contrived to park themselves backwards in one-way streets. Worse, it caught in these dual sad-sacks in an uncomfortable structure imposed on the bank by SA’s brainless political mandarins.
In time, with good fortune, this will change. Perhaps the splitting of the bank and the asset management businesses will also change this picture.
Koseff has become an institution in Investec, and he has become, one suspects, used to operating the business that way, so he sees the inherent sense in allowing Fani Titi and Hendrick du Toit to do the same. That is for the future to decide.
In the meantime, the bank will be dropping the pilot, and that is a moment for reflection and celebration on the bank’s amazing journey so far.