DURBAN - More than R5billion was wiped off Nedbank’s market cap yesterday after the lender withdrew the financial guidance for 2020 it issued last month, warning that the situation had since deteriorated rapidly.
The bank said that a combination of the rapid escalation of the coronavirus (Covid-19) pandemic, and the downgrades of the country’s sovereign debt had presented unprecedented challenges.
It said the downgrades, which also saw the banks losing their credit rating, had also put its medium and long-term targets for return on equity under review.
“Given the rapid escalation of the Covid-19 pandemic and the material changes to the economic outlook since March 3, these macroeconomic forecasts are no longer valid,” Nedbank said.
“As a result, shareholders are advised that Nedbank Group’s 2020 financial guidance, as provided in our annual results announcement has been withdrawn and our medium and long-term targets are under review.”
The withdrawal of the guidance sent Nedbank’s shares tumbling, falling 11.81percent to close at R100.10.
The bank also withdrew its earlier headline earnings per share forecast for the year of 0.7percent - alongside the country’s gross domestic product estimates before the pandemic.
Nesan Nair, a senior portfolio manager at Sasfin Securities, said Nedbank shares fell as a result of concerns that had spooked the industry since the downgrades.
“With regard to Nedbank, it has a proportionately higher exposure to commercial property loans, which are probably the hardest hit sector of the loan market right now, as tenants are under pressure as a result of the lockdown. Banks in general will have their incomes contract as a result of the 200 basis points (bps) reduction in the prime rate,” Nair said.
On Tuesday, the SA Reserve Bank (SARB) slashed the repo rate by another 100bps in an unprecedented move to provide liquidity in the economy, following the 100bps cut last month.
The interest rate cut has pushed the banking index down.
Banking stocks also took a hit, with FirstRand falling 9.68percent to R37.24; Absa 9.51percent to R87.71; Capitec 9.16percent to R960.89; and Standard Bank 4.22percent to R107.54. Citadel trader Jordan Weir said banking stocks, and Nedbank in particular, tumbled as a result of Tuesday’s repo rate cut. Weir said about 7percent of the Nedbank decline could be attributed to the market sell-off of South African stocks, a reaction to the market’s heavily overbought appetite on Tuesday.
“In this extraordinary economic environment, it is ever more likely that other companies within the banking sector will also eventually yield to lower guidance on their financial numbers,” Weir said.
“It seems unavoidable, given the circumstances. SARB’s forecast for the economy to contract more than first estimated has not done the local banking sector shares any favours,” he said.