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FSR - FirstRand Limited - Draft Voluntary Trading Update FirstRand Limited (Incorporated in the Republic of South Africa) Registration number: 1966/010753/06 JSE Share Code: FSR & NSX Share Code: FST ISIN: ZAE000066304 ("FirstRand" or the "Company") DRAFT VOLUNTARY TRADING UPDATE - MAY2008 When announcing its results for six months to December 2007 FirstRand highlighted to shareholders that the deteriorating macro environment, both domestically and globally, would result in a more challenging operating environment for its banking businesses. As anticipated, increased interest rates as well as food and fuel price inflation have negatively impacted consumers` affordability levels particularly in the middle income market segment. Whilst underlying growth in transactional activity remains solid, retail lending continues to slow down and impairment levels are increasing. The diversity of FirstRand`s portfolio of businesses mitigates to some extent the impact of some of the macro issues. Whilst the retail banking franchises are experiencing the effects of a tough consumer cycle, the Group`s corporate franchises continue to experience strong organic growth. The Group`s insurance subsidiary, Momentum, is expected to meet its earnings growth target. The Group indicated at the announcement of its interim results that its revised estimate for bad debts for the year to June 2008 would be between 120 and 130 basis points, which was predicated on unchanged interest rates for the remainder of the financial year. The interest rate increase in April will now result in a further 10 to 15 bps increase on the base case estimate, with a revised range of 130 to 145bps for the year. This deterioration is in line with the portfolio bad debt sensitivity analysis previously presented and was anticipated across all retail portfolios. As expected, given the point in the interest rate cycle combined with potential further rate increases and potential negative property growth, the residential mortgage impairment levels (particularly in First National Bank`s (FNB) consumer segment) have begun to trend rapidly above the December 2007 levels. For the year to June 2008 residential mortgage impairments are expected to be above 90 basis points 2007 - 28bps). WesBank`s earnings continue to be negatively impacted by the combined impact of lower asset growth and higher bad debts characteristic of the current cycle. The process of exiting its Australian operations is on track and the Group is optimistic that the net result of the exit process of the lending operations should be largely offset by the disposal of Worldmark. As reported in FirstRand`s interim results announcement, Rand Merchant Bank`s (RMB) international Equities Trading portfolio incurred losses of $200 million up to 31st December 2007. Since then markets have remained volatile with increased risk and FirstRand was not comfortable with exposing the earnings of the Group to further volatility. Consequently, notwithstanding a belief that the portfolio should yield long term value, a decision was taken to de-risk the portfolio and begin a process, on a controlled basis, of selling down whenever market liquidity presented. The portfolio is now a quarter of its peak. Whilst every effort is being made to limit the economic impact of this process, losses have been incurred in the international portfolio in the second half of the financial year, although they will be less significant than in the first half. Despite the base effect of the R1.43 billion profit generated by the total equities trading activities and the overall exceptional performance of RMB in the period to June 2007, RMB is expected to deliver strong profitability particularly given the excellent performances from its investment banking, private equity and treasury businesses. However, as previously stated, RMB will not repeat last year`s profit performance in the current year. Whilst four weeks remain until FirstRand`s year-end, it is clear to the Board that the combination of the increase in bad debt levels and losses in the international equities trading portfolio will impact the Group`s earnings for the financial year to 30 June 2008. Accordingly shareholders are advised that FirstRand`s 2008 actual diluted headline earnings per share (2007 - R10.9 billion: 204 cps) and pro forma normalized earnings per share following the unbundling of Discovery (2007 - R11.3 billion: 200.6 cps) are expected to be similar to the prior period. This anticipated outcome does underscore the inherent resilience of FirstRand`s portfolio of financial services franchises and its ability to maintain its strong capital position, and the Group expects that over the medium term earnings growth will trend back to an acceptable real growth rate. The above information has not be reviewed or audited by the Company`s external auditors. Details of FirstRand`s results for the financial year ended 30 June 2008 are expected to be released on SENS and published in the press on or about 16 September 2008. Sandton Sponsor RAND MERCHANT BANK (A division of FirstRand Bank Limited) Date: 30/05/2008 12:53:02 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.
