# Regulatory Compliance Category > BEE and Employment Equity Forum >  Banking sector still struggling over BEE charter

## Dave A

The sectoral BEE charter for banking still isn't settled. The big scrap seems to be over ownership targets.



> International investors could see South Africa's political risk rise if the demand by Cosatu and the SA Communist Party - that the direct black ownership in the big four banks and insurance firms be raised from 10 percent to 15 percent - is met.
> 
> The big four banks are Absa, Standard Bank, First National Bank and Nedbank.
> 
> Patrice Rassou, a senior portfolio manager at Sanlam Investment Management, said yesterday that it looked "unlikely" that labour and the banks would come to an agreement on the matter "but hopefully the treasury and Reserve Bank will intervene". 
> 
> He added: "It is crucial that the goal posts are not moved around as that will increase the perception of political risk in South Africa."
> 
> But Jan Mahlangu, the retirement funds representative at Cosatu, told Business Report that the ownership issue was top of the agenda at the union federation's central executive committee meeting, which started yesterday and ends tomorrow.
> ...


A question here (feeling a little thick right now) - Why is COSATU the other side of this "negotiation"? Is BBBEE an issue between business and labour or business and government? Especially on the ownership front!

I don't know if you share my sense of humour, but this point had me giggling:



> But Rassou said it was going to be difficult for the banks to accede to union demands because the current environment was hostile to the banks and they would want to conserve capital at this point of the cycle. 
> 
> "It is also unlikely that the deals aimed at increasing ownership in the banks would find funding from outside of the banking sector," he said.


But it is a serious game being played here. The stakes are high.



> Fears of political risk have long plagued South Africa's empowerment efforts.
> 
> Four years ago petrochemical giant Sasol filed its now infamous form 20-F with the US Securities and Exchange Commission.
> 
> In it Sasol said that due to empowerment legislation "we cannot assure you that this participation will take place through transactions occurring at fair market terms. This will not have a material adverse effect on our business, operating results and financial condition."
> 
> Before that, in 2002, resource shares lost R51 billion on the JSE when the draft charter for the mining industry was leaked to the market.

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## Dave A

Negotiations still going nowhere, and with this story...



> *Unions learning cash is king in global banking crisis*
> 
> The continuing turmoil in the US and UK banking sectors had makes the demands by Cosatu and the SA Communist Party (SACP) for an increase in direct black ownership in local banks harder to justify, according to analysts and fund managers.
> 
> They said yesterday that recent events had shown the unions and the SACP the importance of having a shareholder of reference - one that could provide capital when the banks were desperately in need of it.
> 
> They were speaking after it had become clear that talks between the unions and the banks had failed to resume since the banks suspended them in early August, claiming that the unions had failed to submit any proposals to further negotiations.
> full story from Business Report here


I think some core issues of empowerment are getting exposed.

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## wynn

Why don't they just take 100% ownership of 'Lheman Brothers Bank'?

 :Wink:

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## Dave A

Going cheap  :Big Grin: 

The hard point is the role of the shareholder. This is someone who has made a capital contribution to the establishment/furtherance of the business and expects a reasonable return on investment.

Now where is the capital contribution in most empowerment deals? The short answer is there isn't any. It's a transfer of ownership, either financed by the company directly (drawing capital away from the prime purpose), or has external finance underwritten by the company - carefully concealed by some figure shifting.

Now that liquidity is tight, external finance is a problem. More interestingly, the underlying value underwriting existing deals has been diminished - and that was exactly what triggered the sub-prime crisis.

How are companies showing this nett liability on the balance sheets?

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## Graeme

What are the consequences of simply telling them to go to hell?  Govt shut down the banks?

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## Dave A

During the BEE consultation process, the fact that government *really* has no desire to nationalise was slipped oh-so-casually into the asides...

But BEE isn't much about enforcing anything - it's about coercion. In this instance, I'd say nearly every municipality would move their accounts to the bank that has done the most to appease.

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## Dave A

Banking and COSATU still can't see eye to eye. The various departments' reactions is particularly interesting.



> The financial crisis would not force labour to relax its demand for direct black ownership in banks to be lifted to 15 percent, Cosatu said yesterday. Such a shift would postpone transformation in the sector, it added.
> 
> Banks and the unions remain far from agreement on the proportion of direct black ownership, almost six months after missing the August 31 deadline for the end of the transitional period for compliance with broad-based black economic empowerment (BEE).
> 
> Jan Mahlangu, the retirement funds representative at Cosatu, accused those who resisted increased black ownership of wanting the country's wealth to remain in the hands of the few.
> 
> "If we back off this important demand, it means the burden of this global financial crisis would be borne by South Africa's poor alone," said Mahlangu. 
> 
> "South Africans must see the crisis is a result of greed." 
> ...


Perhaps one mystery is cleared up at least. I've been wondering why it is COSATU sitting opposite the banks on this issue. But the involvement of Jan Mahlangu might point to the real reason - the prospect of cheap shares.

What obstacle is there to COSATU buying bank stocks right now?

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