Viceroy launches fresh attack on Capitec

Short-seller Viceroy says that it has submitted names and evidence of Capitec’s questionable loan practices to South Africa’s finance committee – including the questions it says the bank refuses to answer.

The group’s latest move follows at least two prior reports on Capitec in as many months, in which it accuses it of being a loan shark and trying to hide the risks of its loan book from investors through clever accounting.

Viceroy – which makes money by shorting a company’s stock and then releasing damning reports on those groups – first published a report in late January claiming that Capitec was ‘cleaning’ its loan customers by immediately granting loans to clients who had taken out other loans to repay their previous Capitec loans, without a ‘cool down’ period.

This, the research group said, made Capitec’s loan books look healthier than they are in reality, while effectively ‘hiding’ the risks of default from its client base. It also accused Capitec of manipulating debt orders so that Capitec loans were paid off first, exacerbating strained financial positions of customers.

It declared Capitec “uninvestable”, and called for the bank to be put under curatorship and a formal investigation to be launched.

For its part, Capitec has consistently denied Viceroy’s claims, saying that the firm did not understand how its business operated. It provided detailed responses to the allegations, and invited Viceroy to meet with the bank’s management to get a better idea of what was going on.

The bank was also backed by ratings agencies, the South African Reserve Bank and the National Credit Regulator.

However, Viceroy maintains that the authorities got it wrong.

The short-seller now claims that its engagements with Capitec have proven fruitless, saying that Capitec has failed to answer any of its questions, and has instead chosen to be evasive and tangential with the data it did provide.

The group said it was a perfect example of why it did not want to engage with Capitec management in the first place – because they simply do not answer questions.

“Viceroy has been criticised for not engaging with management prior to publication of our reports. Capitec’s response is a prime example of why we choose not to.

“We maintain our recommendation that Capitec should be subject to an external, independent regulatory investigation, which we believe will result in Capitec being placed in curatorship to protect its consumers,” the group said.

Viceroy said it sent Capitec eight very specific questions, and received eight vague answers – all of which can be read in Viceroy’s latest document.

“As the bank has failed to answer our questions, we reassert our opinion that Capitec Bank is fundamentally uninvestable and await the findings of a formal investigation,” the group said.

“We look forward to presenting to parliament on Capitec, including debt counsellor data. Analysts would be wise to deep dive before dismissing our research.”

Capitec is currently in a closed period ahead of its annual results, and has not yet responded to Viceroy’s latest volley. The group previously warned shareholders that Viceroy’s attack on its business would continue for some time.

On Wednesday, the group’s share price traded 1.4% down, to R854.92 – still off from the highs seen before the first Viceroy report.

Despite the controversy, the bank said that it expects earnings per share for the year ending February 2018 to be between R38.02 and R39.01 per share, an increase of between 16% and 19% compared to the R32.78 per share in 2017.

Read: Capitec expects earnings jump as share price continues recovery after Viceroy hit