Capitec Bank welcomes FSCA's R50m fine for Viceroy Research's 'wolf in sheep's clothing report'
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CAPITEC Bank yesterday welcomed the Financial Sector Conduct Authority (FSCA) slapping Viceroy Research with a R50 million fine for publishing “false, misleading or deceptive statements, promises or forecasts regarding material facts about Capitec, which they ought reasonably to have known were not true”.
The penalty was imposed on Viceroy Research and its partners, Aiden Lau, Fraser John Perring and Gabriel Bernarde, aka the respondents, in terms of section Financial Sector Regulation Act 9, which was payable within 30 days from the date of the order.
Capitec, valued at R219.7 billion, and which has seen its share price soar 218.8 percent in the past five years to roughly 18 890 cents a share, has been recognised for the second time in a row as the third strongest banking brand in the world in the annual Brand Finance report on the 500 strongest and most valuable banking brands.
However, in January 2018 Capitec’s reputation and share price came under fire when Viceroy Research accused it of underhanded business practices and called on then-finance minister Malusi Gigaba and the SA Reserve Bank to immediately place it into curatorship, saying it was a matter of time before the JSE-listed bank went bust.
Viceroy Research released a report titled “Capitec: A wolf in sheep’s clothing”, the company says based on its research and due diligence, it believed the bank is a loan shark with “massively understated defaults masquerading as a community micro-finance provider”.
In the wake of the report Capitec’s share price slumped 23 percent on the JSE, before recovering after the SA Reserve Bank (SARB) issued a statement defending the soundness of the lender’s capitalisation and liquidity.
In April, SARB in its financial stability report hit out at the short-selling strategy of Viceroy Research, saying the strategy had the potential to create financial instability.
Capitec, which is in a closed financial period, yesterday said it had no further comment.
FSCA commissioner Unathi Kamlana said: “This penalty is particularly significant because it shows just how far the FMA (Financial Management Act) reaches.
“Although the Viceroy Research Partnership and its partners are not financial institutions, and are domiciled in a different jurisdiction, their comments about South African listed securities make them subject to the stipulations of the act. The penalty also makes it clear that breaching our financial sector laws has serious consequences.
“Capitec is a systemically important financial institution in South Africa, therefore, the respondent’s false statements, and their failure to subsequently publish corrections of these statements, posed a clear and present threat to the stability of the South African financial system,” the FSCA said.
False statements included a: statement, promise or forecast that Capitec had to write off more than 42 percent of the gross collectable principal debt due to it in full-year 2017; that Capitec had a pervasive practice of rescheduling the loans of its delinquent clients through the issuance of new loans to such clients, and that Capitec’s loan book was irreconcilable by approximately R3bn.
The false statements also said that Capitec was guilty of reckless lending and would lose a court case that would trigger a class action lawsuit; that the class action lawsuit would result in Capitec being ordered to pay R12.7bn to its former and current clients; that “Capitec’s board is largely and unsurprisingly made up of several executives from both PSG and Steinhoff”; and that Capitec needed to recognise an additional R11.37bn of impairments to accurately reflect its liabilities.
Yesterday, the FSCA said in considering the penalty it had considered how Viceroy Research statements had caused the Capitec share price to decline, while the respondents had gained from this.
The respondents had made a concerted effort to publish these statements as widely as possible, knowing that Capitec was a systemically important financial institution in South Africa, and that these statements had the potential to trigger a run on the bank.
The FSCA said it had to also enlist the assistance of the Securities and Exchange Commission of the US to compel a representative of the Viceroy Research partnership to be questioned under oath.