FirstRand founder punts banks - despite R214m sale

Paul Harris, one of the three founders of banking giant FirstRand, says South African banking shares are vastly undervalued.

Two weeks ago, Harris sold shares worth R214-million in RMB Holdings, which owns 33.9% of banking giant FirstRand. But he said this was no indication he believed banking shares had reached a peak, and in fact they were due for a rerating that should benefit investors.

"There's no reason why banks should be so lowly rated. They provide consistently good earnings, they have strong balance sheets, and pay out increasing dividends. I can't understand why they're rated lower than the rest of the market," he said.

While the JSE's All-Share index trades on a price:earnings ratio of 20.9, bank shares are far cheaper, trading at 14.6 times earnings. The most expensive are Capitec (23.6 times earnings), Standard Bank (15.6), FirstRand (14.9), RMB (14.1), Nedbank (11.9) and Barclays Africa (12.08).

Bank shares have done well in the past year, led by Capitec, which soared 133%. Since January, the banks index has grown more than 10%, which has led a number of banking executives to cash in.

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Harris, 64, who was CEO of FirstRand until 2009 when he stepped down, said he sold the RMB shares as part of a bid to diversify his investment portfolio, not to raise capital for a new business venture. "I'm a nonexecutive director and I'm no longer directly involved at RMB. I have other business interests, and there are other things I wanted to do," he said.

His son and daughter are partners with him in a private equity enterprise, which has invested in a number of ventures. "We've only taken some small stakes in companies, but we're continually looking at different investments," Harris said.

Famously, Harris, GT Ferreira and Laurie Dippenaar started the company that would become FirstRand with just R10000 in 1977.

Today, FirstRand is the country's largest bank worth R300-billion, and it has provided the springboard for a number of other companies, including Discovery and Outsurance.

In March, FirstRand CEO Sizwe Nxasana and four other directors sold shares worth R154-million.