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Private Banking

Business profile

Through strong partnerships, we have created a community of clients who thrive on being part of an entrepreneurial and innovative environment. Our target market includes ultra high net worth individuals, active wealthy entrepreneurs, high income professionals, self-employed entrepreneurs, owner managers in mid-market companies and sophisticated investors.

Private Banking focuses on the following activities:

Investec Private Bank positions itself as the 'investment bank for private clients', offering both credit and investment services to our select clientele.

Banking

We deliver a number of personal savings, transactional activities and mortgage services for individuals, as well as cash management and treasury products for businesses.

Growth and acquisition finance

We focus on providing mezzanine or composite debt funding and minority equity investment to assist entrepreneurs, management teams and private equity houses to implement acquisition and organic growth strategies in mid-market companies.

Specialised lending

We are specialists in providing structured debt solutions for high net worth individuals with complex borrowing requirements.

Structured property finance

We play an integral role in the financing of property acquisitions and development transactions for our commercial and residential clients through delivery of senior debt, mezzanine and equity funding structures.

Trust and fiduciary

Our Trust and Fiduciary business focuses on the delivery and administration of appropriate financial structures which hold financial and non-financial assets for our clients.

Management structure

Global head of Private Banking	Steven Heilbron

UK and Europe
Regional heads	Avron Epstein
	Paul Stevens
Chief operating officer	Chris Forsyth
Structured property finance	Gary Dobson
Specialised lending	David Drewienka
Growth and acquisition finance	Ed Cottrell
Specialised banking	Wayne Preston
	Linda McBain
Trust and fiduciary	Xavier Isaacs
Investec Bank Channel Islands	Stephen Henry
Investec Bank Ireland	Michael Cullen
Marketing	Linda McBain
Finance	Liza Jacobs
IT	Alan Bletcher

South Africa
Country head	Colin Franks
Chief operating officer	Jodi Joseph
Risk management	Mark Trollip
Credit risk	Anthony Church
Banking	Kobus Burger
Strategic projects	Grant Hartland
IT	Graeme Lockley
Regional head: Cape Town	Rob Nicolella
Regional head: Durban	Brendan Stewart
Regional head: Johannesburg	Brett Copans
Regional head: Port Elizabeth	Dion Millson
Regional head: Pretoria	Charl Wiid

Australia
High income transactional banking	Barry Lanesman
Structured property finance	Paul Hanley
Specialised lending	Paul Hanley
Growth and acquisition finance	Paul Hanley
Private wealth management	Paul Hanley

Treasury and operations in Australia have been centralised.

Review of operating environment

In each of the geographies in which we operate, private clients were materially impacted by the global financial crisis. Private clients experienced significant wealth erosion resulting in risk aversion, reduced appetite for leverage and a focus on balance sheet management.

This in turn had a significant impact on each of our business units resulting in materially reduced activity and increased impairment levels over the past two and half years. In response to these conditions the businesses have been through rigorous strategic reviews and restructuring. Economic recovery has been slower than anticipated but across all geographies we have now started to experience an increase in activity levels.

Financial analysis

•

The Private Banking division reported a loss of £91.4 million

•

Impairment losses on loans and advances have increased as a result of the depressed economic environment

•

Key earnings drivers:

–	Core loans and advances increased by 3.0% to £13.3 billion since 31 March 2010
–	The deposit book increased by 5.9% to £12.5 billion since 31 March 2010

•

The Private Bank Wealth Management specialisation moved to the Wealth and Investment division with effect from 1 April 2010 in South Africa and 1 July 2010 in the UK and Europe.

Contribution analysis

*	Before goodwill, acquired intangibles, non-operating items, taxation and after non-controlling interests (excluding Group Services and Other Activities).
**	As calculated in the financial review.

Operating profit/(loss)^ – track record

Trend reflects numbers as at the year ended 31 March. The numbers prior to 31 March 2005 were reported in terms of UK GAAP. Amounts from 2008 are shown before goodwill, non-operating items, taxation and after non-controlling interests. Prior to 2008 amounts have not been adjusted for non-controlling interests.

Income statement analysis

£’000	31 March 2011	31 March 2010	Variance	% change
Net interest income	295 249	287 121	8 128	2.8%
Net fee and commission income	70 963	91 344	(20 381)	(22.3%)
Principal transactions	33 027	12 578	20 449	>100.0%
Other operating income	348	(498)	846	>100.0%
Total operating income	399 587	390 545	9 042	2.3%
Impairment losses on loans and advances	(244 976)	(115 195)	(129 781)	(>100.0%)
Operating costs	(246 052)	(238 298)	(7 754)	3.3%
Operating (loss)/profit before goodwill, acquired intangibles, non-operating items, taxation and after non-controlling interests	(91 441)	37 052	(128 493)	(>100.0%)
UK and Europe	(84 041)	6 545	(90 586)	(>100.0%)
Southern Africa	2 990	29 330	(26 340)	(89.8%)
Australia	(10 390)	1 177	(11 567)	(>100.0%)
Operating (loss)/profit before goodwill, acquired intangibles, non-operating items, taxation and after non-controlling interests	(91 441)	37 052	(128 493)	(>100.0%)
Ordinary shareholders' equity*	1 099 642	1 008 371	91 271	9.1%
ROE (pre-tax)*	(9.2%)	5.3%
Return on tangible equity (pre-tax)*	(9.6%)	5.5%
Cost to income ratio	61.6%	61.0%
Operating (loss)/profit per employee (£'000)*	(42.4)	17.0	(59.4)	(>100.0%)

*	As calculated in the financial review.

The variance in operating loss over the year can be explained as follows:

•	The increase in net interest income is mainly due to improved lending margins and a growth in the loan portfolio in South Africa. In the UK and Europe net interest income has been negatively impacted by increased liquidity levels
•	Net fees and commissions receivable have decreased as a result of lower lending activity levels in prior periods, the closure of the trust office in Guernsey and the successful migration of the Private Bank Wealth Management business to the new Investec Wealth and Investment pillar
•	Principal transactions include the revaluations and realisations of equity and warrant positions held. The increase in principal transactions reflects the realisation of equity holdings in the UK and Europe and the increased value of equity held in South Africa
•	Impairment losses on loans and advances have increased substantially in the UK and Europe and South African businesses. In the UK and Europe this is due to the limited improvement in the UK economic situation combined with the continued difficult operating environment in Ireland. The increase in South Africa is due to a slower than expected recovery in the default book. Refer to the financial review for further commentary on the group's view on impairments
•	The increase in expenses was mainly driven by the increase in average headcount in South Africa. In the UK and Europe expenses decreased due to a drop in the average headcount related to the migration of the Private Bank Wealth Management business to the new Investec Wealth and Investment pillar and the significant restructuring of the Irish business at the beginning of the financial year.

Further analysis of operating income and impairments

	UK and Europe		Southern Africa		Australia		Total
Operating income £’000	31 March 2011	31 March 2010	31 March 2011	31 March 2010	31 March 2011	31 March 2010	31 March 2011	31 March 2010
Structured Property Finance	54 739	80 999	88 286	75 676	16 827	19 882	159 852	176 557
Growth and Acquisition Finance	21 129	9 600	44 007	26 757	6 094	5 776	71 230	42 133
Specialised Lending	4 758	8 334	13 630	16 455	274	–	18 662	24 789
Banking	23 544	21 021	78 868	53 626	26 434	26 053	128 846	100 700
Wealth Management	3 162	13 937	–	7 161	2 019	2 003	5 181	23 101
Trust and Fiduciary	14 028	21 012	1 788	2 253	–	–	15 816	23 265
Total	121 360	154 903	226 579	181 928	51 648	53 714	399 587	390 545

	UK and Europe		Southern Africa		Australia		Total
Impairments £’000	31 March 2011	31 March 2010	31 March 2011	31 March 2010	31 March 2011	31 March 2010	31 March 2011	31 March 2010
Structured Property Finance	(106 554)	(53 794)	(56 953)	(16 151)	(24 162)	(15 986)	(187 669)	(85 931)
Growth and Acquisition Finance	(17 496)	(484)	(17 043)	(7 613)	(84)	(266)	(34 623)	(8 363)
Specialised Lending	463	(1 405)	(3 029)	(792)	–	–	(2 566)	(2 197)
Banking	(194)	250	(17 182)	(16 242)	(2 616)	(2 884)	(19 992)	(18 876)
Wealth Management	–	–	–	175	–	–	–	175
Trust and Fiduciary	(110)	–	(16)	(3)	–	–	(126)	(3)
Total	(123 891)	(55 433)	(94 223)	(40 626)	(26 862)	(19 136)	(244 976)	(115 195)

	UK and Europe		Southern Africa		Australia		Total
Net operating income £’000	31 March 2011	31 March 2010	31 March 2011	31 March 2010	31 March 2011	31 March 2010	31 March 2011	31 March 2010
Structured Property Finance	(51 815)	27 205	31 333	59 525	(7 335)	3 896	(27 817)	90 626
Growth and Acquisition Finance	3 633	9 116	26 964	19 144	6 010	5 510	36 607	33 770
Specialised Lending	5 221	6 929	10 601	15 663	274	–	16 096	22 592
Banking	23 350	21 271	61 686	37 384	23 818	23 169	108 854	81 824
Wealth Management	3 162	13 937	–	7 336	2 019	2 003	5 181	23 276
Trust and Fiduciary	13 918	21 012	1 772	2 250	–	–	15 690	23 262
Total	(2 531)	99 470	132 356	141 302	24 786	34 578	154 611	275 350

Analysis of key earnings drivers (loans and deposits)

	UK and Europe		Southern Africa		Australia		Total
£’million As at	31 March 2011	31 March 2010	31 March 2011	31 March 2010	31 March 2011	31 March 2010	31 March 2011	31 March 2010
Residential property	1 447	1 502	3 346	2 850	424	383	5 217	4 735
Residential property investment	547	532	325	168	41	146	913	846
Residential mortgages (owner occupied)	191	178	2 548	2 189	67	41	2 806	2 408
Residential property development	537	589	134	139	218	135	889	864
Residential estates/land	172	203	339	354	98	61	609	618
Commercial property	1 538	1 581	3 475	3 702	609	602	5 622	5 885
Commercial property investment	986	1 160	3 061	3 267	555	568	4 602	4 995
Commercial property land	281	322	288	303	28	18	597	643
Commercial property development	271	99	126	132	26	16	423	247
Other	535	565	1 405	1 183	815	695	2 755	2 443
Asset backed lending	252	226	204	339	530	529	986	1 094
Unlisted securities and general corporate lending	82	75	580	336	117	99	779	510
Unsecured lending	57	74	134	130	66	48	257	252
Other	144	190	486	378	102	19	733	587
Total gross core loans and advances	3 520	3 648	8 225	7 735	1 848	1 680	13 594	13 063
Specific impairments	(142)	(58)	(85)	(27)	(26)	(30)	(253)	(115)
Portfolio impairments	–	(5)	(14)	(10)	(2)	(1)	(16)	(16)
Net core loans and advances	3 378	3 585	8 127	7 698	1 820	1 649	13 325	12 932
Asset quality
Gross defaults	331	205	550	399	222	211	1 103	815
Collateral value	(291)	(149)	(651)	(521)	(211)	(206)	(1 153)	(876)
Impairments	(142)	(63)	(99)	(37)	(28)	(31)	(269)	(131)
Net defaults (limited to zero)	–	–	–	–	–	–	–	–
Gross defaults as a % of gross core loans and advances	9.4%	5.6%	6.7%	5.2%	12.0%	12.5%	8.1%	6.2%
Defaults (net of impairments) as a % of net core loans and advances	5.6%	4.0%	5.5%	4.7%	10.7%	10.9%	6.2%	5.3%
Credit loss ratio	3.5%	1.5%	1.2%	0.6%	1.5%	1.3%	1.8%	1.0%

*	Further information on the type of lending we undertake within the division and the asset quality of the loan portfolio is contained in this report.

	£'million			Home currency 'million
Net core loans and advances as at	31 March 2011	31 March 2010	% change	31 March 2011	31 March 2010	% change
UK and Europe	3 378	3 585	(5.8%)	£3 378	£3 585	(5.8%)
Southern Africa	8 127	7 698	5.6%	R88 374	R85 500	3.4%
Australia	1 820	1 649	10.4%	A$2 825	A$2 730	3.5%
	13 325	12 932	3.0%

	£'million			Home currency 'million
Total deposits as at	31 March 2011	31 March 2010	% change	31 March 2011	31 March 2010	% change
UK and Europe	6 100	6 308	(3.3%)	£6 100	£6 308	(3.3%)
Southern Africa	5 155	4 607	11.9%	R56 081	R51 181	9.6%
Australia	1 211	851	42.3%	A$1 877	A$1 413	32.8%
	12 466	11 766	5.9%

Further analysis of key earnings drivers

Net core loans and advances

Deposits

Trend reflects numbers as at the year ended 31 March.

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