Investec to flog UK unit

When the subprime crisis shook the banking world six years ago, South Africa's financial institutions hardly broke a sweat - apart from Investec, whose share price got pummelled by investors due to its exposure to British home loans.

Investec yesterday said it was now considering the sale of Kensington, the London-based mortgage business that has had shareholders nervous throughout the financial crisis .

It appointed Fenchurch Advisory to look at a sale after receiving "expressions of interest" in Kensington, the dual-listed firm said.

Investec bought Kensington in August 2007 for £283-million as the subprime market ground to a halt after record US mortgage defaults.

Though loan losses rose by more than two-thirds to £93.2-million in the 12 months to March 2009, Investec said it had posted a cumulative pretax profit since 2007.

"Like almost all mortgage providers, Kensington is a bad business and the removal of it would structurally reduce the duration of the back book and increase the bank's return on equity," James Hamilton, an analyst at Numis Securities in London, said yesterday.

"Investec could deliver at least a high-teens return on equity even without economic recovery."

Its stock rose by more than 4% yesterday, the biggest intraday gain in seven weeks.

Investec's exposure to Kensington's loan book totalled £814-million, the bank said.

"Having received certain expressions of interest and with the ongoing recovery in mortgage lending and wholesale funding markets, Investec believes Kensington is now well placed to continue growing and this growth potential may be better realised under different ownership," said Ursula Nobrega, the bank's head of investor relations.

Investec said it would provide an update by the end of next month on the possible sale or joint venture of its Australian asset finance and leasing business and professional finance division, which lends to doctors, dentists and lawyers.

Operating profit rose 12% in the nine months to December from the year-earlier period, Investec said without giving details.

Assets under management fell 2% to £108-billion after a weaker South African currency eroded the value of funds managed in rands.