South Africans' London float begins to list

Amid falling markets and a sex discrimination case, Investec docks in the City tomorrow. Jason Niss? meets the bank's chiefs

Stephen Koseff, chief executive of Investec, spent most of last week making presentations to investors who he hoped would buy shares in the South African investment bank when it lists on the London Stock Exchange tomorrow.

At the start of his spiel, he pointed out that when he joined the group, in 1980, he was employee number eight. Bernard Kantor, Investec's managing director, was employee number six, having arrived two weeks previously. "In fact, we've known each other even longer than that," Koseff says. "We used to play each other in the Johannesburg accountants soccer league."

"Stephen was a very tough midfielder," Kantor adds.

The dynamic duo hung up their boots long ago. But over the past two decades they have proved a potent financial strike force, turning a tiny Johannesburg merchant bank into one of South Africa's biggest financial services groups. Investec now boasts 5,500 staff (mostly in Johannesburg and London), £45bn of funds under management and a raft of old familiar City names – including Hambros, Guinness Mahon, Clive Discount, Henderson Crosthwaite, Sheppards and WI Carr.

It has integrated scores of businesses, often buying them when they were on their knees and turning them around. "We're a bit like prawns scurrying along the bottom of the ocean eating crap and turning it into something worthwhile," jokes Kantor.

One of its key weapons is a team of more than 20 psychologists led by Allen Zimbler, who started working with Investec in the 1980s. "They talk about the culture and try to create a home for people," says Kantor. "Investment banks are very strange animals. The products don't vary very much; the difference is the way people treat one another." Zimbler has a saying that has helped Investec over the years: "Hardship creates character". So the troubles now afflicting Investec will just build more character.

It has been listed in South Africa since 1986 – and likes to point out that as it floated shortly before one market crash, the latest one is hardly unfamiliar territory. Four years ago, it decided to go for a dual listing in London, reflecting the fact that nearly half its business is over here (it also has an operation in Israel, a few in offshore financial centres, and a small office in New York that is likely to get smaller as the group realises that it doesn't belong on Wall Street).

But the South African Reserve Bank wasn't keen on the idea. It had seen South African groups like Old Mutual, Dimension Data, Anglo American, South African Breweries and Billiton take London listings and turn all their attention to the City. So it made life hard for Investec, holding up the dual listing for over three years.

In the meantime, an encouraging story of almost unstinting growth had turned a little sour.

First, Investec bought a South African life insurance group called Fedsure for around £370m last year. Investec and Fedsure had purchased stakes in each other about 10 years before and agreed to stay out of each other's territories. "The strategy never worked. We started competing with each other," admits Kantor. "Then they got into trouble and we felt a certain moral obligation to them, though what we wanted was their funds under management." The takeover became acrimonious, with Fedsure refusing to let Investec see its books. When it did take the business over, it found it in a complete mess.

"They were trying to do too much," says Koseff. "The organisation had too much infrastructure, miles too many people, and we had to rebalance the portfolio." With a certain steel, Koseff adds: "It's all behind us. We've dealt with the issue."

An issue not yet dealt with, though, is the sex discrimination case brought against the group's London stockbroking arm, Investec Henderson Crosthwaite. Former media analyst Louise Barton alleges that the firm discriminated against her by paying Mathew Horsman, a former journalist on The Independent who she recruited, twice as much as her. The case continues.

Kantor denies the claims: "There is an issue of principle here. We treat all people equally." He says three of the group's executive committee are women. "We find this very frustrating to be accused of discrimination because we don't. We can't believe that someone complains when they have been given a bonus of £300,000. We are not going to be blackmailed."

The topic has been raised at almost every investor presentation, but Kantor and Koseff are sure they have soothed all fund managers' concerns.

What they can't soothe is the state of the markets. In the three months since Investec was able to start working on the dual listing, the FTSE 100 has fallen 20.9 per cent and its own shares 15.5 per cent. In business terms, this is not as bad for Investec as it might be for other firms, since it enables it to pick up good people who are being kicked out of the likes of Morgan Stanley, Goldman Sachs and CSFB. But an absence of deals and an unwillingness among any but the brave to invest does not help Investec's bottom line, and certainly does not help its chances of raising the £100m it hoped to bring in from a share offer linked to the listing in London.

"We are in a strong position already," argues Koseff. "Unless the share issue represents value for both parties, I would hate to dilute the shareholders who have remained loyal to us. We don't have to raise the capital."

Koseff and Kantor are at pains to stress that they are not the dreaded "dual heads" who tend to run investment banks: Koseff is definitely the boss. "We're like a grandparent and grandchild," he says. "We have each other when we need each other but we give each other space."

"He's responsible to shareholders as chief executive," adds Kantor, "but he treats me very much like a partner." As any tough midfielder might.