Nationalising the Reserve Bank

Gwede Mantashe mooted the idea of nationalising the Reserve Bank.

This is a nationalisation that makes sense. The bank has the job of managing our foreign currency holdings and the value of our currency. As such it belongs to all of us and not just to its shareholders.

But central banks, when they emerged in the 1600s, were conceived as joint ventures between private and public interests. The privately owned banks took shares in the central bank and were represented at board level to ensure that they operated in broad rather than narrow interests.

To ensure that individuals do not profit from their involvement in the central bank, strict limits have been imposed on what proceeds they may draw. In the case of the South African Reserve Bank this is a dividend of 10c a share a year. You would not then, in the normal course of things, invest in this central bank to be able to make money.


But, curiously, there has been some interest in recent years on the part of private investors in buying and holding these shares in our central bank. There was even an attempt to get the bank to raise the amount of money it pays as a dividend.

You could rightly, as a concerned citizen, form the impression that a section of the private investors had greater intentions than being able to attend the annual meetings for free biscuits and a cup of tea. You could easily think that they were mounting some kind of takeover of a very public institution.

But how can you take over a creature of statute, one that has all kinds of limits on the amount of shares an individual may hold and how many votes each share carries? The answer is you can't. But you may have to do little more than behave inappropriately, such as turning up at the annual meeting barefoot or attempting to table motions to increase the dividend, and the authorities would want you out.

They would have to nationalise the institution to do this and here we see what the game might be. A clause in the Reserve Bank Act reads: "In the event of liquidation, the reserve fund and surplus assets (if any) of the Bank shall, subject to the provisions of subsection (3), be divided between the government and shareholders in the proportion of 60% and 40%, respectively."

That's 40% for you and 60% for us, a lot of moolah. One of the private shareholders estimated the value of each share in such an event at R4200. Considering that the shares have a notional value of just R1.00 (they pay only a 10% dividend, remember) this is a spectacular return.

But, if this was your strategy, there is a problem. If you were reading carefully you would have noticed that the clause printed above makes reference to another clause -- subsection 3. This reads: "If the amount payable to a shareholder in terms of subsection (2) exceeds the average market price of his holdings of shares in the Bank over the period of 12 months preceding a day three months prior to the date upon which a Bill providing for such liquidation is introduced in Parliament, so much of that amount as exceeds the said average shall be paid to the government."

The compilers of this Act clearly intended that no private shareholder should profit from holding these shares.

Click over to the Reserve Bank's website, where the shares are traded, and you can see that there is a massive gulf between buyers and most sellers. Most sellers are offering shares in bundles of 10000 at between R4200 and R6400 a share. A single seller is offering about 7000 shares at R12.50 a share. Buyers are offering between R1,00 and R11,50 a share.

The ruling price is R12,50.

I suggested to shareholder Michael Duerr, who claims to speak for 25% of the shares through friends and family, that the price that would be paid in the event of nationalisation, the average price for the past year, would probably be no more than R5.00 a share. His answer: "It is not so simple, as a liquidation would be suicidal because of the reputational risk involved for the Bank.

"Furthermore, there is no market price according to the Act since the delisting of the JSE, as the self-regulated OTC platform from the bank, legally speaking, makes the shares unlisted securities with all the problems attached. We may have a discussion about the possibilities."

The Reserve Bank runs a greater reputational risk at this time. It is in a state of low-level warfare with a vocal section of its shareholders, some of whom wish to rewrite the terms on which it does business.

My strong sense is that there would be broad support in the markets and elsewhere for the nationalisation of the bank on the terms contained in the Act. At, say, R5,00 a share the cost of buying out the shareholders would be R10-million.

Source: Mail & Guardian