Thursday, 19 January 2017


In a few hours, the hoopla will be over and the chair in the Oval Office will have been adjusted for a much larger frame. Now comes the hard part and the markets will be the first to signal public reaction to how the new president is doing, Keep a very keen eye on that US ten-year bond yield in the coming weeks. If it starts to shoot up the verdict is bad.
Meanwhile back home a rather less sensitive indicator is nevertheless starting to signal that the Zuma government is getting into difficulties. Tax revenues are slowing down sharply.This is a new and very worrying development. The 12-month deficit is approaching R200bn compared to the budgeted R154bn. Those fancy #Feesmustfall hash tags are going to be disappointed.
It’s all turning very messy rather quickly. Most of it is very old news but now the events are being revisited in a sea of confusion, bad grammar and indignant vengeance, all fuelled by the vain expectation that the state might be able to get its hands on some sorely needed cash (see above). More than two dozen years ago, the now very extinct Trust Bank was doing what badly run banks have done through the ages. It was lending money to people who were never going to be capable of paying it back. So when Trust Bank’s inevitable sticky end approached, the government, very mindful that many of the bank’s owners (in itself a messy story) and clients were Nationalist Party supporters, made the foolish and probably illegal decision to launch the infamous “lifeboat”. Taxpayers money was loaned to the ailing bank at a very low rate on the condition that it be used to buy much higher yielding government bonds and other instruments. The capital amount was probably therefore never at risk, but the net interest flow was from the lender (the government) to the borrower (Trust Bank). An interesting early example of negative interest rates.
Just what became of the “lifeboat”, and what its potential recovery value to the state might be has long concerned the curious. In particular, the rash of bank amalgamations that have taken place since those days have complicated the task for at least four investigations into the mystery. The now leaked Public Protector’s is just the latest attempt to follow the money. One investigation even was carried out by a commercial British outfit, who as well as charging a very large upfront fee in pounds, got the new government to agree to pay as much as 10% commission on any “recovered” funds. Fortunately, it seems they recovered nothing, not least because ABSA, which undeniably is a distant descendant of Trust Bank, strenuously insist that they acquired no liabilities arising from that particular wreck. The cold fact is that the money – actually now in today’s terms a rather modest amount – is gone. Yet another memorial to every government’s desire to carry out political allocation of assets.
And now the latest banking mess is just starting to sprout shoots. Following the 2008 financial crisis our regulators were delighted to adopt so-called international best practice which it was claimed would ensure that such things never happened again. FICA was born and box-ticking compliance officers appeared on the scene. Since then there has been no obvious decrease in financial frauds but repositories have been filled with useless certified copies of every document a client could produce (and several they couldn’t!). Sensible prudent organisations had long practiced a far more personal “know your client” policy which was far friendlier and also quite good at spotting risk. Amusingly, however, the FICA axe has recently been wielded to deny banking facilities for a family of Number One’s special friends which the banks claim is dodgy. But no problem.  Friends of the friends may have tracked down a South African banking licence which is for sale and so JZ’s mates may soon be back in the game. Watch that space.
Two puzzles today. What really is happening with AB de Villiers? Will he ever again play for the Proteas? And when will the Aussies grasp that Open doesn’t have to mean no roof on the stadium. Those tennis players are really tough.
James Greener
USA President Trump Inauguration Day 2017