FIRSTRAND BANK LIMITED - Impact of the FirstRand Groups Proposed Acquisition of Aldermore on FirstRand Bank Limited

Impact of the FirstRand Group’s Proposed Acquisition of Aldermore on FirstRand Bank Limited

FirstRand Bank Limited
(Incorporated in the Republic of South Africa)
(Registration number 1929/001225/06)
JSE company code interest rate issuer: FRII
JSE company code debt issuer: FRD

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IMPACT OF THE FIRSTRAND GROUP’S PROPOSED ACQUISITION OF ALDERMORE ON
FIRSTRAND BANK LIMITED

On 6 November 2017, FirstRand Limited (together with its subsidiaries, the
“FirstRand Group”), announced that the boards of FirstRand International
Limited ("FirstRand Offeror") and Aldermore Group PLC ("Aldermore") had
reached agreement on the terms of a recommended cash offer to be made by the
FirstRand Offeror for the entire issued and to be issued ordinary share
capital of Aldermore (the "Offer"). FirstRand Limited is the parent company
of FirstRand Bank Limited (the "Bank"). The Offer values the entire issued
and to be issued ordinary share capital of Aldermore at approximately £1.1
billion. The Offer is intended to be effected by means of a Court-sanctioned
scheme of arrangement under part 26 of the Companies Act 2006 (the "Scheme").
The Offer remains subject to certain conditions which are set out in the
Announcement, including that the Scheme becomes unconditional and effective
on or before 30 April 2018 or such later date as FirstRand Offeror and
Aldermore may agree (subject to court approval, if required).

Aldermore is a UK-based bank providing asset finance, invoice finance,
mortgage and deposit products to Small and Medium-sized Enterprises,
homeowners, landlords and savers. Founded in 2009, Aldermore is listed on
the Main Market of the London Stock Exchange, is a constituent of the FTSE
250 leading share index and had total assets of £9.6 billion (at 30 September
2017).

FirstRand Offeror is a wholly-owned subsidiary of FirstRand Limited. The
impact of the transaction on the FirstRand Group was disclosed to
shareholders in FirstRand Limited's announcement of 6 November 2017.

This announcement by the Bank provides holders of the Bank’s debt securities
with specific information relating to the impact of this transaction on the
Bank should the Scheme become effective.

MotoNovo Finance ("MotoNovo") is currently a business segment of the Bank's
London Branch and contributed R727 million (4%) of the Bank’s total
normalised earnings of R18 089 million for the year ended 30 June 2017.

If the Scheme becomes effective, the FirstRand Group’s current UK retail and
business/SME operations, which include MotoNovo, will be integrated into
Aldermore to form a separate pillar. MotoNovo has historically been funded
through a combination of securitisations, warehouse facilities and the Bank’s
balance sheet. Once integrated into Aldermore, MotoNovo will be supported by
Aldermore's funding platform which is only utilised for UK lending books.
All new business by MotoNovo will be funded through further scaling
Aldermore's deposit and funding platform. MotoNovo's current loans will
continue to be funded through existing funding mechanisms, but will be run
down over time. As a result, MotoNovo will ultimately cease to form part of
the Bank's operating activities as Aldermore will not be a subsidiary of the
Bank.

The Bank believes that the transaction would have the additional benefit of
freeing up funding and liquidity capacity on the Bank's balance sheet,
currently utilised for MotoNovo, which can now be deployed into the FirstRand
Group's South African and rest of Africa growth strategies.

The consideration payable under the Offer will be funded from the FirstRand
Group's existing cash resources. To finance the acquisition, the FirstRand
Offeror has entered into an intra-group loan agreement with the Bank pursuant
to which the Bank has agreed to provide FirstRand Offeror with a loan facility
of an aggregate principal amount of up to GBP1.3 billion (or such higher
amount as they may agree).

Any goodwill arising from the transaction will effectively result in an
impairment against the FirstRand Group’s capital for purposes of determining
capital adequacy. The FirstRand Group will back the goodwill arising from
this transaction with CET1 capital, a portion of which will be provided from
the Bank’s excess regulatory CET1 capital.

The Bank considered a range of variables in assessing the likely impact of
this transaction on its CET1 ratio, these include:
- a range for the final goodwill amount, as this is yet to be finalised; and
- the anticipated capital generation of the Bank and other Group entities
  before the transaction is concluded, which would impact the portion of
  the goodwill that would have to be backed by CET1 capital provided by the Bank.

Given the above, if the Scheme becomes effective, the impact on FirstRand
Bank's CET1 ratio is currently estimated to be a reduction of between
approximately 90 and 130 basis points.

Sandton

15 November 2017

Sponsor

RAND MERCHANT BANK (A division of FirstRand Bank Limited)

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