Investec results pleased the market despite impairments four times higher than in 2007.

Bruce Whitfield:
The market responding positively to Investec's results today and despite the group showing growth in key markets the negativity around investment banks globally really is not helping sentiment toward the share, full-year operating profit to the end of March up 15 percent. It had to take write-offs in United States and the results were below analysts’ expectations. Bernard Kantor, good evening it is good to talk to you and one looks at your results for the year to the end of March 2008 and the impairments on the income statement must be a little bit worrying, nearly four times higher than the R122-million you had in the 2007 financial year.

Bernard Kantor:
Yes I think one needs to analyse that very carefully Bruce and clearly certainly in the UK we have been right in the eye of the storm of the credit crunch so one is going to definitely expect some impairments there and certainly we saw a write-off of £49-million on the US structured credit business and then of course in Kensington we had £55-million and that is the nature of that business. I don't think one should be necessarily too perturbed about that that is in line with the norm and then there were other impairments that we took in the business which made up the balance. But I think those are relatively, other than Kensington, which is the nature of that business those are one-offs. In fact I can tell you the corporate book in South Africa which is the bulk of the capital markets business we don't have one bad debt at the moment or one debtor that is a problem. So I think one has got to see these things in perspective and as I have said Kensington that is the nature that is the nature of that book and the US we have now written down everything to levels where quite frankly you just can't write off any more. So we are quite relaxed about that but clearly there are tougher times coming and we are not excluded.

Bruce Whitfield:
Yes most certainly not excluded and Kensington I know there must be some regret within Investec about not only the acquisition of Kensington but also the timing which came just ahead of the whole subprime crunch issue. I mean are you looking at it as a bit of a lemon as an acquisition?

Bernard Kantor:
Bruce I think the timing was brilliant. You know they interviewed someone the other day, they asked what do you think about Investec and he said no they are very kind decent people and then he stopped and waited and then he said well who else will pay for Kensington what they did. No look the timing was diabolical. I mean it was just one of those things and in hindsight one would not have done the deal at that point in time but that is life you know.

Bruce Whitfield:
You have to live with it.

Bernard Kantor:
I think more important we got into it, we restructured the business. I personally think it will still shock us all in the foreseeable future.

Bruce Whitfield:
Shock you on the upside on hopes.

Bernard Kantor:
On the upside yes. Look remember that because it is a very technical business, you must remember this is a statistical business, it is not about lending money to an individual. So I can tell you that for example because of the fact that house prices in this country can't get finance anymore the life of the book prolongs so whilst you didn't get the early settlement fees your margin, your absolute margin has grown to such a degree that it more than compensates you for a reasonable write-down in the value of the housing market. So for example in the book where we are exposed which is called the warehouse book, or shall I say where we are more exposed, the loan to value there is nothing more than 73 percent on average of the value of the house. Now the margins make up for a hell of a lot, in fact some of the stress tests we have done if you write off this year by 7.5 already that we have done from the beginning of this year and provide another five percent on house deflation or devaluation in the housing market and five percent next year you will find that our provision is adequate at 90-million. You will also find that the net income will grow because of the extension of the book to between 130 and 145-million a year and then you will have overheads which are right down to between 28 and 32-million. So you have really got the income less your overheads as either income or additional provision and when I look at our position already of 90-odd-million I don't know I think we may just surprise on the upside.

Bruce Whitfield:
We certainly hope so and your shareholders hope so too but the UK housing market, I don't want to dwell on it for too long, we think we have got problems here, they are also beginning to see some incredible stress in that UK housing market. South Africa 63 percent of your operating profit; is that because South Africa is just doing brilliantly or is it just because other part of the world are feeling the global stresses a bit more.

Bernard Kantor:
I think South Africa is just a great business. It is pre-eminent in most things that it does, it is dominant in private banking, it has got a great capital markets business, in asset management it is either number one or two on the retail side whichever way you like to measure it. It is just a great business so very hard to compete with South Africa as your competitor when you are sitting in London and especially when you get hit by this financial tsunami we have just seen over here. Having said that you know it stood us in good stead and it will continue to do so and we will continue to grow for as long as we can and London has got a lot of hard work, London and Australia, to catch up.

Bruce Whitfield:
When you look at the South African market are you seeing some stresses beginning to appear in your client base? Of course your client base is quite wealthy, probably around a million-rand sort of starting income within that client base as well. A lot of those guys are quite stretched at the moment; are you feeling that pain for them on their behalf yet?

Bernard Kantor:
I don't think South Africa will be immune to the credit crunch. I believe some of the banks are raising tenure money, a form of capital, upper tier two, very technical, at 500-points above. Now that is very expensive money and if people are raising money at that sort of level then you must understand that we are going to see some very tight times in South Africa and that is just trying to be objective sitting over here and looking back at South Africa. So I think the credit crunch will come there, I think it is there already, you can see inflation is a problem, rates are moving up, you almost probably have to push them up again. So I think we are naive to sit here and think that we are not going to see bigger impairment yes.

Bruce Whitfield:
If South Africa loses some of the steam and South Africa clearly is carrying the overall global earnings is there some slack within the UK, within Australia, which might actually pick that up a little?

Bernard Kantor:
Well you know lets look at our principal finance business in the US where we wrote off £48.9-million, you know that is a one-off we can't the write that stuff down any more. We have just written it down to the maximum unless there is a real disaster in which case don't worry about Investec or anybody else for that matter. So I think if you add that back to our figures before we even start you are looking at a healthy growth on this year's performance so I think all things considered if Kensington just behaves half reasonably well I think you can see that ratio drop from 63, this is not a forecast but just off the top of my mind, you may see it back into balance at closer to 5050.

Bruce Whitfield:
Bernard Kantor thanks very much indeed, the group managing director of Investec on the line to us from London this evening.