Even when he was a 12-year-old sitting in a church pew, Laurie Dippenaar was thinking about numbers. The sermon bored him so he would guess how much each person would put in the collection plate; then he would work out the total. This was how deeply the roots of people and money run in his life.
Fifty three years on from the church pew, Dippenaar sits in a more comfortable chair, in a well upholstered boardroom in Sandton, the business district of Johannesburg. These days, his collection plate is worth $625 million; a fortune he has built carefully over the last 30 years. He is the father of FirstRand, a financial investment company, and the grandfather of First National Bank (FNB), Rand Merchant Bank Holdings (RMBH), OUTsurance, and Discovery Health; all of which are pillars of South African business. Dippenaar has built an empire on old business, but is more interested in the new. It has been some ride.
They say when Dippenaar is involved in a deal, it’s always a big deal. It’s one reason why he’s listed at number 23 on the FORBES ‘Africa’s 40 Richest list’. Try telling him that.
“To me it’s senseless. Success is not money; there are thousands of things that people are very successful at that don’t involve money. In business it’s one of the measurements, but it’s not the only measurement of success. People can say how they built a business, but it’s irrelevant what the founder’s net worth is,” says Dippenaar.
From a humble middle-class home to Menlo Park High School in Pretoria, South Africa, to riches. It was a journey that was helped by being at the right place at the right time. In his case, that meant working with GT Ferreira and Paul Harris, the men with whom he would build the FirstRand Empire, the second largest financial services company in South Africa.
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Dippenaar grew up talking about kidneys and livers around the dinner table. Of his family of six, four are doctors. But he says the calling to save lives was not his. He knew he was different. He recalls reading the Financial Times from an early age, something he does to this day. Dippenaar always likes contextualizing numbers.
“Any person who has a business, I am intrigued at how it works, what its key things are. Some guys might like cars, I like business. Any business,” he says.
Success did not come overnight. It took 30 years of hard work—waking up at 4AM and leaving at 8PM—with a lot of tough decisions over hard business facts.
It was a difficult choice for young Dippenaar when he went to university. He wanted to be a lawyer, but ended up a chartered accountant.
Dippenaar saw his chance during his only three years of working for someone else. He worked as an investigating accountant at the Industrial Development Corporation (IDC), a South African government institution that bankrolls companies.
“That’s where the big idea came. They had a structure called leverage leasing and I used to work with it a lot. I thought this has got huge applications in financial services,” says Dippenaar.
In a leveraged lease, the lending company, in this case IDC, holds the title to the leased asset, while the lessor creates the agreement with the lessee and collects the payment. The payments are then passed on to the lender.
In 1977, Dippenaar left. With leverage leasing in mind, he teamed up with Ferreira and Pat Goss, with whom he worked at the IDC, and created Rand Consolidated Investments (RCI). All they had was a secretary and R10,000. At the time, the rand was worth a dollar, says Dippenaar, even so, in today’s context, the seed capital would be worth around $9,000. It meant that they did not draw a salary for nine months.
Goss left the company after three months when his father died. Dippenaar and Ferreira bought him out, in a trade-off for shares in the Goss family business and a racehorse called Scoop. Goss left with a R500 ($50) stake in RCI. Today, Goss’s current shareholding with the company is worth R740 million ($74 million). The racehorse did not do as well.
Harris, another university friend was called to fill the gap. The company grew from R10,000 to profit after tax of R657,000 in four years.
It meant RCI borrowed money on long-term capital markets off the balance sheet of its clients. In effect, they were able to become their own bank.
In 1983, six years into the business, RCI was approached by Johann Rupert, the second richest man in Africa worth $5.3 billion, who wanted to sell his bank, Rand Merchant Bank (RMB). Rupert was going back to the family business, Rembrandt Group, and needed to offload.
The opportunity was too good to pass up, says Dippenaar. RCI sold into RMB and got a controlling stake of the company, which they named Rand Merchant Bank Holdings Group (RMBH); while RMB remained a subsidiary. The deal gave Dippenaar and his crew a banking license and a chance to diversify. By 1988, RMBH was making profits of R13 million ($1.3 million) a year.
“We decided you have to operate under some sort of regulatory regime, you can’t just be out there if you are financial services. So, we explored different regulatory regimes and we decided on banking,” says Dippenaar. This was the first of three massive company takeovers.
In 1992, the company decided it needed an entity that could yield a steadier flow of income. The answer was Momentum Life, a life insurance company. Dippenaar carried a reverse takeover and sold RMBH to Momentum Life for a majority share and formed Discovery Health, now the largest private healthcare company in South Africa.
By the time democracy came in 1994, Dippenaar was just getting into his stride. He could see that a number of big international investment banks would be looking to the country. The company needed a retail bank strategy.
“Our next move as a sort of defense mechanism, we bought 20% of the old Natal Building Society (NBS) bank. We wanted a controlling stake but they decided against it. We sold the shares.”
“In 1998, we identified Southern Life. It was ailing at the time, so we decided it was a target we could take over and fix. We approached Anglo-American and they said if you want Southern Life, you have to take FNB [First National Bank] as well. It fitted into our strategy, it was a retail bank, but it was a massive deal. It was beyond our size. But we took it as a massive opportunity, the next very large deal,” he says.
RMBH needed to raise R5 billion ($500 million) in new capital, in a day or two, in order to seal the deal, according to Dippenaar.
“It would have ranked, at the time, as one of the bigger merger deals in the world,” he says.
Out of this, FirstRand was born. It was to become the second largest financial services company in South Africa, with normalized earnings of R12.7 billion ($1.27 billion) in 2012.
It’s all about being rational. The golden thread that binds FirstRand together is a 30-year-old pay-off line.
“I know what made us successful. You can almost capture it in four words: ‘Traditional values, innovative ideas’. Our companies have very strong value systems.”
Dippenaar says this makes for a culture of entrepreneurs.
“FNB, under Michael Jordaan—who was steeped in this culture—has made the bank one of the most innovative in South Africa. We spawned Discovery which has reshaped the whole of the medical insurance industry. We spawned OUTsurance, which has rewritten short-term insurance. We like to think we are no holy cow. There is no space where a junior cannot challenge his boss, in fact we encourage it. As long as you are polite about it,” he adds.
It was Dippenaar who gave Adrian Gore, today the guiding spirit of Discovery, his shot.
Gore remembers their first meeting. As a young actuary in 1991, he says he was taken aback by Dippenaar’s intelligence and strong thoughts of what he needed to grow his idea. When Gore and Dippenaar meet, it’s business over the breakfast table.
“It’s a good time in the day to have an intense discussion. There is always some deep issue he wants to talk about and it’s always a treat. Even when he has breakfast he’s thinking. Dippenaar has the ability to build businesses that are based on real social values and real nation building… it’s not fair to call him a businessman; he’s much more than that,” says Gore.
It’s a partnership that has lasted 20 years and is responsible for the health of 2.5 million people. Gore is planning to expand into Asia, and Dippenaar is likely to be along for the ride.
So what did Dippenaar do when the recession hit like a flash flood in a desert?
The global financial crisis hit FirstRand hard. Dippenaar and the crew lost R1.4 billion ($140 million) in overseas earnings. It was the biggest loss since the company began.
“It was an Armageddon of unbelievable proportions in financial services… there may be a few who hedged a bet, they might have foreseen something, but not what finally happened,” he says.
The United States had a housing bubble, built on subprime mortgage-backed securities against property price estimates. It popped. Dippenaar had planned for everything, but he never thought the bubble would deliver such a blow.
“No one had any idea of the knock-on effect of the popping of that housing bubble. When the property prices started collapsing, that’s when people started discovering the banks had extended credit in the most irresponsible manner and no one had any inkling of the effect on massive banks.”
The company weathered the storm, thanks to a strong balance sheet and copious reserves. It was a storm that forced banks around the world to tighten their belts with stricter regulation.
“The thing that has hurt them [the public] and angered them is that the tax payer, in many countries, has had to bear the brunt of failed banks. So, poor decision-making in banks, which were too big to fail, had to have the state inject capital at the tax payers’ expense. It’s a very legitimate gripe,” he says.
In business, says Dippenaar, risks change all the time and the key is to stay confident.
“If you had an ounce of doubt that we would not be able to pay you back, you would be gone. It’s that confidence; it’s the customer’s confidence in your product,” he says.
One risk of the day in South Africa is unsecured lending. The South African National Credit Regulator shows that this risky lending has grown from $711 million to $2.9 billion in five years.
Unsecured lending has opened the way for banks to boost their interest margins as home loans, one of the mainstays of banking, have tightened following the global financial crisis.
It means that more banks are offering loans without collateral. In return, the borrower must pay more interest. The risk is that if the borrower runs into trouble, banks must go through a costly process to claw back the loan, without any assets to help them.
The growth in unsecured lending has spooked international credit rating agencies such as Moody’s Investors Service, which threatens further rating reductions. This could lead to higher interest rates for borrowers.
“We reflect the increased risk of such shocks occurring in our negative outlook on the South African sovereign [rating]. This outlook also reflects the country’s extreme socio-economic challenges, which, in turn, threaten its longer-term economic and political stability,” according to investors from Moody’s.
Even giants such as FirstRand are trying to surf the unsecured lending wave. Last year, FirstRand increased unsecured lending by 27% to $467 million, while home loans grew a mere 2%. In May, African Bank Investments wrote off $45.2 million of bad loans and registered a 26% drop in first-half profit this year.
“It’s a problematic area. And there is going to be a lot of pain,” says Dippenaar.
Through the pain, is a legacy of FirstRand entrepreneurs. Dippenaar says they sold $40 million of their shares to entrepreneurs whom they believe will be the next generation of FirstRand top dogs; this will give the entrepreneurs some skin in the game.
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