Crisis at Absa

Absa CEO Arrie Rautenbach will leave the bank on 15 October 2024, another blow to the company, which has experienced significant challenges in recent years.

On Monday, Absa announced today that Rautenbach will take early retirement following engagements between the board and its CEO. He was appointed on 29 March 2022.

Rautenbach will cease to be the chief executive officer and an executive director of the boards on 15 October 2024.

Charles Russon will become interim CEO of Absa Group and Absa Bank effective 15 October 2024, subject to regulatory approval.

Russon has been chief executive of Absa’s corporate and investment bank (CIB) since 2018 and a member of the group executive committee since 2014.

The announcement that Rautenbach will leave Absa came shortly after the Sunday Times reported that his tenure as chief executive was on the line.

The newspaper said the bank’s challenges included the “slow pace of transformation, governance lapses and human resource blunders”.

He reportedly met with the bank’s top leadership to garner support, but the meeting did not go as planned.

Some leaders told him they “had lost all confidence in him and wanted a new CEO, while others said they wanted a black African CEO”.

“The general view was that he is weak commercially, and the company has performed poorly under his stewardship,” the Sunday Times reported.

Rautenbach was also embroiled in a compliance scandal related to a close associate working for Absa from the United States.

The former Absa executive became a United States citizen in mid-2022, which means the bank may have violated US tax and social security regulations.

Although the bank did not give reasons for Rautenbach’s departure, the media reports seem to have been accurate.

This means that Absa, which has had seven chief executives in seven years, faces yet another leadership challenge.

Financial Times writer and financial journalist Rob Rose said Absa, who has had five CEOs in four years, could not afford another crisis at the top.

However, that is exactly what has happened. “It sheds the light on how unstable Absa has been for the last few years,” Rose told SABC News.

He said while the share price reacted positively to the news, it showed problems in the boardroom.

“It was never an easy time for Arrie Rautenbach. There have been factions in the Absa leadership team for years,” Rose said.

He added that the bank does not know what it is and suffers from an identity crisis on where it fits into the South African banking landscape.

“It used to be the country’s biggest home loan and retail bank. However, that slipped during the Barclays years,” he said.

In an attempt to regain its leadership in these fields, it seems to have created a leadership crisis and turmoil at the top.

In comparison, Standard Bank, under chief executive Sim Tshabalala, has had stable leadership for years.

Tshabalala has been chief executive since 2013. Before that, he served as deputy CEO for four years.

FirstRand has also enjoyed orderly success among its leaders. Before handing the reigns to Mary Vilakazi, Alan Pullinger served as chief executive since 2018.

Nedbank’s top leadership has been the most stable. CEO Mike Brown was South Africa’s longest-serving banking CEO, holding the position for 14 years before stepping down.

Brown handed the reigns to Jason Quinn this year. He was the financial director of Absa before joining Nedbank.

Absa’s instability is reflected in its share price, which is down 8% over the last year, while the other banks performed well.

Nedbank’s share price has increased 42% over the last year, Standard Bank’s rose 23%, and FirstRand increased 17%.

Absa’s poor share price performance is unsurprising. It has significantly underperformed compared to its competitors.

Absa’s first-half results for the 2024 financial year were not good. They revealed a decrease in earnings and profit for the bank.

Its headline earnings decreased 5% to R10.18 billion from R10.72 billion, and diluted headline declined to 1,227.7 cents from 1,289.1 cents in H1 2023.

Absa’s return on equity declined to 14.0% from 15.7%, and its return on average assets was 1.04% from 1.16% the year prior.

Operating expenses increased 8% to R28.33 billion, resulting in a cost-to-income ratio of 52.7%, up from 50.6%.

Absa’s South African headline earnings decreased 7% to R6.61 billion from R7.11 billion in the prior period.

Standard Bank is often used as a benchmark, and comparing Absa’s performance with that of Standard Bank clearly illustrates Absa’s poor performance.

The charts below show Absa’s performance when compared to Standard Bank’s over the past few years.