More On Maybank

Blogged on Friday night: Maybank Has Lost 24.1 Billion In Market Capital Since BII Deal!!!

Mentioned was the impairment losses issue.

On today's Edge. PAC report: BII buy may impair Maybank results by RM300m in FY09

• KUALA LUMPUR: Malayan Banking Bhd (Maybank) may make impairment losses of about RM300 million in Bank Internasional Indonesia (BII) for its financial year ending June 30, 2009 (FY09), a Bank Negara Malaysia (BNM) official told the Parliamentary Public Accounts Committee (PAC) last November.
  
  According to BNM assistant governor Nor Shamsiah Mohd Yunus who was called to appear before the committee chaired by Datuk Seri Azmi Khalid (Padang Besar-BN) then, Maybank’s impairment losses in BII could be in the region of RM300 million, based on Indonesia’s risk-free rates at that time.
  
  “The outlook is for Indonesia to reduce the interest rates further but based on our current assessment, the impairment could be in the region of RM300 million.
  
  “But if the interest rate were to come down further, that is likely to be the case based on what the (Indonesian) governor has said because of the impending slowdown, then we think that there may not even be any impairment when it comes to the June 30 account,” Nor Shamsiah told a panel of 11 PAC members.
  
  The published transcript of three panel hearings last November on Maybank’s takeover of BII was handed to Members of Parliament at the Dewan Rakyat last week.
  
  The hearings were held in the midst of the controversy surrounding Maybank’s purchase of BII due to the high cost.
  
  According to a copy of the transcript obtained by The Edge Financial Daily, Nor Shamsiah said Maybank would have to make an annual impairment assessment according to the accounting policy.
  
  “They (accountants) would look at the future cash flow and they will do a present value. So you look at the height of the crisis when we imposed the condition, the discount rate was very high and that is why your present value will be smaller and they could be very big impairment. That was why we imposed the condition,” she explained.
  
  Nor Shamsiah was referring to BNM telling Maybank to obtain a new agreement on a purchase price that would not result in it making substantial impairment under international reporting standards and impacting the fundamental soundness of Maybank. Maybank had since obtained a RM759 million discount from Temasek on the purchase price of BII.
  
  Nevertheless, she said with the discount and the decrease in Indonesia’s discount rate following the interest rate cut, the impairment that Maybank might need to book for the current financial year would be “something that the bank could absorb”.
  
  Commenting on Tony Pua’s (Petaling Jaya Utara-DAP) remark on the concept of a “high value in use” that resulted in a minimum impairment in BII, Nor Shamsiah said it was because BII was a long-term investment for Maybank and as such, it would look at its growth perpetuity in determining impairment losses. She added that it was a standard methodology used in industries.
  
  Meanwhile, the PAC report also revealed that BNM officials believed the Maybank president/chief executive officer transition plan was also a factor that might have adversely affected the deal.
  
  Nor Shamsiah said Maybank was caught off-guard by the sudden departure of its president and CEO Tan Sri Amirsham A Aziz who was appointed a senator and then made a minister in the Prime Minister’s Department.
  
  She said the plan was for the new CEO, Datuk Seri Abdul Wahid Omar, to assume his role on June 1 while Amirsham would stay on for one month to ensure a smooth transition.
  
  “Suddenly that plan could not be followed because the current CEO was appointed a senator. So that was something that was not foreseen by Maybank when it was managing this acquisition. So, looking back, one area that Maybank could have managed better was the transition,” said Nor Shamsiah.
  
  She explained that the management had given the mandate to the president to undertake the acquisition and when Amirsham was made senator half-way through the deal, the bank was caught unawares.
  
  “It did not have a contingency plan in place to deal with that immediately. Its contingency plan was to have the current and new president to overlap for one month. When you are caught with unanticipated development, the outcome is not as good as what you could have hoped for,” she said.
  
  The report also revealed that BNM was unaware that Maybank was the only bidder after HSBC Holdings plc and Bank of China Ltd withdrew their bids.
  

Maybank Has Lost 24.1 Billion In Market Capital Since BII Deal!!!

March 27th 2008: Maybank pays 4.6 times price-to-book for RM4.8b acquisition of BII

• “It was for strategic reasons and the financial rationale was extremely compelling.The acquisition will transform our growth prospects in Indonesia and is a huge step forward in our strategy to regionalise our operations through investments in selected high growth markets,” he said.

Business Times article on that day carried the following article, which can be read here

• BII deal pricey, but worth it
  
  Is BANK Internasional Indonesia (BII) an expensive deal for Malayan Banking Bhd (Maybank)? On the surface, yes it is. The offer prices BII at 4.6 times book value, while the top five Indonesian banks now trade at around 3.8 to 3.9 times book. However, there are compelling reasons why it is a price worth paying.
  
  The main one is that there are not that many banks that are up for sale in the Southeast Asian region. The first window opened in early 2000 when Indonesia opened its doors to foreign investors to buy its financial assets. Maybank tried in 2004 but its group lost out to the UK's Standard Chartered. This time around, a smaller window opened. Indonesia introduced a rule that prevented a foreign investor from owning more than one bank.
  
  Only Khazanah Nasional Bhd and Temasek, Singapore's investment arm, are affected by this rule. Khazanah owns Lippo Bank directly and Bank Niaga through Bumiputra-Commerce Holdings Bhd (BCHB). Khazanah wants to merge Lippo and Niaga. This leaves Temasek, which owns Bank Danamon and BII. As such, the price tag, apart from a premium for control, also reflects a scarcity premium. "I think it's an acquisition of wanting to be in the market, against price. Otherwise, you might not get an opportunity," said Mushthaq Ahmad Ibrahim, chief investment officer of MIDF Amanah Asset Management Bhd.
  
  It can also be argued that Maybank is paying more for Indonesia's potential. The world's fourth-most populous country has an economy that chugs along at an annual growth rate of about six per cent. Maybank officials revealed yesterday that Indonesia's loan-to-gross domestic product ratio is 24 per cent, compared with 75 per cent in Thailand and 90 per cent in South Korea. This means that there is plenty of room for BII to grow.

Sept 16th 2008. Business Times published the following article.

• Jakarta rejects Maybank's appeal
  
  By Goh Thean Eu Published: 2008/09/16
  
  Now that the Indonesian regulators have shot down Maybank's appeal, it is almost certain the pact to buy BII will lapse by September 26 and Maybank risks losing its RM480 million deposit
  
  INDONESIA'S capital markets regulator has refused to relax rules for Malayan Banking Bhd, putting its RM8.8 billion deal to buy PT Bank Internasional Indonesia (BII) closer to collapse while a RM480 million deposit risks being forfeited.............
  
  Maybank shares have taken a beating since it announced the acquisition on concerns that it is overpaying. Its shares have fallen by 12.3 per cent, from RM8.95 each to RM7.85, since the deal was announced. (you can access to article here )
  
  

Maybank used to be 8.95 but thanks to BII it fell to 7.85.

The next day on the 16th Sept 2008, Maybank fell 45 sen and on the stock fell another 50 sen the next day to close at 6.90.

Some 'news' on the 17th Sept 2008: Bank Negara reinstates nod for Maybank-BII deal

Research house, CIMB, defended the BII deal: Maybank’s potential trading loss from BII capped

Points to note.

• "However, the market is likely to react negatively to this turn of events given the concerns over the high valuation and capital commitment for the BII deal,” it said.
  
  The research house said while it was pleased that the deal would go ahead, the flip-flops in the past two months underscore the high policy risks of operating in Indonesia.
  
  “Furthermore, the potential BII loss may be an earnings overhang in the next few years,” it added.

High valuation and high capital commitment and future impairment losses!!!

A few weeks later, blogger Dali wrote, Petaling Street Hawkers Calling You Back With Deeper Discount!

• When Maybank was faced with the embarrasing situation of losing the deposit for having to walk away - the sellers DID NOT offer a way out for Maybank, knowing full well that Bank Negara was making life hell for Maybank with the additional clause inserted by the Indonesian authorities. Maybank was getting slammed (correctly) for not tightening the deal terms (e.g. deal off if approval is not gotten from the Indonesian authorities, or if there are conditional "changes" to the deal when being approved by the Indonesian authorities).
  
  Make no mistake, i am not siding with Maybank here - in fact the people responsible for the deal should sent back to school.
  
  So to the buggering sellers offering the 480 million ringgit discount - go fly my wau! Too little too late.
  
  Maybank, take your medicine and walk away, lose 400 million ringgit OK what... but surely SOME BLOODY heads must roll - who were the advisors, who were the legal advisors, who were the managers in charge of negotiating the deal???

Why didn't Maybank just walk away and lose that 400 million ringgit?

When Mayban was at 8.95, before BII deal was formally announced, Maybank's market capital was some 43.6 Billion.

Blogger Dali was also quick to point out a few weeks later on 21st October that FinanceAsia reported that the Hongkong and Shanghai Banking Corporation, through its wholly owned subsidiary HSBC Asia Pacific Holdings (UK), will acquire 88.9% of PT Bank Ekonomi Raharja for $607.5 million in cash. HSBC will fund the deal through its own resources.

Dali was quick to pen Say Sorry To Maybank?!!! and commented the following.

• It is interesting to note that Bank Ekonomi has a Shareholders' Funds of Rp1.121 Trillion (RM392 million), which means that HSBC is effectively buying Bank Ekonomi at a Price to Book multiple of 6.1 times! This is much higher than the Price to Book multiple of 4.6 times that Maybank will be paying to acquire Bank Internasional Indonesia ('BII') [before subsequent discounts granted by the sellers]. The different in size may account for the higher multiple demanded by the sellers in the Bank Ekonomi deal as compared to the BII deal, as part of the purchase price must include the price of the banking license itself. Nevertheless, one may wonder why does HSBC want to pay such a high premium for this bank since it already has a foothold in Indonesia?
  
  Here we have to be fair to Maybank. For those of us who criticised Maybank for over-paying, HSBC would be doing even worse. The trouble is that we tend to whack our local buggers more readily, and would give big foreign players more benefit of the doubt in almost any transactions. Let's be honest here. HSBC paying 6.1x ... we were screaming of collusion and calling for the board to be sacked for Maybank buying at 4.6x...
  
  There can only be so many possiblities: both Maybank and HSBC overpaid ..... Maybank may have been smarter to buy first as HSBC also bidded for BNI against Maybank ... maybe now HSBC had to overpay even more for not being aggressive in their bidding for BNI... Thanks to HSBC's move, Maybank executives had their prayers answered... they now have something to defend their acquisition with. Even if both Maybank and HSBC overpaid, Maybank will say they overpaid much less. Time for those of us who critiqued to again re-look into the "intrinsic value" of Indonesian banking.
  
  Fair is fair, maybe I have pre-judged Maybank's strategy and misjudged its "valuation techniques". It does not mean I agree with HSBC's strategy, but if an old woman is running very fast, there's bound to be something fishy.

And I would also like to point out that Tunku said...

• There is a big difference between paying a premium for license vs paying a premium for franchise. HSBC is paying a premium for a license THAT does not impact its balance sheet. Maybank is paying a premium for a franchise THAT is a huge part of its balance sheet.
  
  NOT all acqusition is the same analysis and price to book does not tell you everything...

Oct 30th: Risk of impairment losses for Maybank’s acquisitions abroad

• “They were untimely acquisitions. Maybank committed to buy the banks when the world was already in turmoil. The subprime loan issue had surfaced in the west. If it could have waited, the RM10bil would have bought a lot more now that the market is dirt cheap,” said a fund manager.
  
  He added that Maybank paid at the top end of the range even at that time. The price it paid for BII is close to four times the bank’s book value and about 5.1 times the book value per share of MCB Bank.
  
  Banks in the region are now trading about equal to their book values but of course, a higher valuation has to be offered in a takeover or a strategic stake.

Last month, on 27th Feb 2008, MALAYAN BANKING BERHAD ("MAYBANK" OR "THE COMPANY") PROPOSED RENOUNCEABLE RIGHTS ISSUE ON THE BASIS OF NINE (9) ORDINARY SHARES OF RM1.00 EACH IN MAYBANK (“RIGHTS SHARES”) FOR EVERY TWENTY (20) EXISTING ORDINARY SHARES OF RM1.00 EACH HELD IN MAYBANK (“SHARES”) and a few days later, Maybank fixed it's rights issue price MALAYAN BANKING BERHAD ("MAYBANK" OR "THE COMPANY") PROPOSED RENOUNCEABLE RIGHTS ISSUE ON THE BASIS OF NINE (9) ORDINARY SHARES OF RM1.00 EACH IN MAYBANK (“RIGHTS SHARES”) FOR EVERY TWENTY (20) EXISTING ORDINARY SHARES OF RM1.00 EACH HELD IN MAYBANK (“SHARES”) (“PROPOSED RIGHTS ISSUE”)

Dali was quick with his update: Maybank's Not-So-Right Rights Issue!

• This is where the crux of the matter lies, Maybank bought and invested late into regional banks, at highish prices. The crisis has basically set Maybank up to need to write down substantially on their acquisitions. NOTE THAT NO IMPAIRMENT CHARGES WERE RECORDED for the latest quarter - hint, its coming over the next couple of quarters!!!.
  
  Final thoughts, sell first ask questions later. The rights will be an uphill exercise. If you still want to buy Maybank, look for when the rights are traded, they could be "very cheap". Even when you get the rights cheaply, remember you will have to tolerate a few quarters where there will be substantial writedowns on the regional banks' acquisitions.

Well done! Sell first ask questions later was the advice given by Dali on the 5th of March. (see Maybank closes at fresh lows of RM4.54 )

Do note: Maybank share base before the rights issue was 4,881,123 million shares. After rights issue, Maybank shares would balloon to 7,077,628 million shares!!!!

Do see also financeAsia article: Maybank sets rights issue price

And on today's Edge: Maybank market cap down RM6.5b over 11 days

• KUALA LUMPUR: Malayan Banking Bhd (Maybank) saw RM6.54 billion erased from its market capitalisation over 11 days of losses, the longest losing streak in 22 years, on investors’ concerns that rising bad debts and capital-raising plans would erode its earnings.
  Maybank closed at RM4.06, down 28 sen yesterday, which was a decline of RM1.34 or 24.8% from Feb 24 when the share price closed at RM5.40.
  
  The market capitalisation was reduced from RM26.35 billion on Feb 24 to RM19.81 billion as of yesterday.
  
  Last month, Maybank announced a RM6 billion rights offer to boost capital.

The market capitalisation was interesting!

Maybank today closed at 4.00.

Market capital is now only 19.5 billion.

Remember, before BII deal, Maybank's market capitalisation was some 43.6 billion!

Some 24.1 billion in market capitalisation has gone into thin air!!

Is BII deal really worth it?

How?

Look at Maybank's stock price.

It has fallen off the cliff!

Maybank had bought banks at a rather high prices and despite many quarters questioning the wisdom of the deal, Maybank held firm with their acquisitions. And now, a rights issue is needed!!

Surely Maybank shareholders aren't happy.

Overpaying for banks here and there. And most of all, the share price is down a lot and since BII deal, Maybank has lost a whopping 24.1 Billion in market capital!!! And if they want to continue to be a shareholder, they have to fork out more money and with the impairment of losses issue, the future is not looking bright at all. (ps. would you want to invest in Maybank right now at 4.00?)

And other Bursa Malaysia shareholders aren't happy either!

How can they ever be happy?

The continued weakness in Maybank is dragging down market sentiments.

Lastly, I have to point out the question raised by Dali last Sept, why didn't Maybank just walk away and lose that 400 million ringgit? Justified? Just eat humble pie and just walk away.

Look at the mess now.

I repeat once more, 24.1 billion wiped of from Maybank's market capital since BII deal was announced last year!

And losses could even mount!

OUCH!!!!!!!!!!!!!

Shareholder Group Reckons that Malayan Banking Directors Should Quit!

Interesting article published on Business Times, 'Maybank directors have to go if deal falls through'

• 'Maybank directors have to go if deal falls through'
  
  Published: 2008/08/07
  
  The Minority Shareholder Watchdog Group says it is against the BII deal for three reasons: the bank was late in entering the market, the pricing and the timing
  
  THE directors of Malayan Banking Bhd (Maybank) should be held responsible if the PT Bank Internasional Indonesia (BII) deal falls through and RM480 million deposit is forfeited, the Minority Shareholder Watchdog Group (MSWG) said yesterday.
  
  "They (the directors) should resign. No question. If it happens (Maybank loses the deposit), the whole board has to go. It's my money, it's the rakyat's money.
  
  "We were against the deal (for three reasons). Number one, they were late (to enter the market), others have already gone in. Number two is the pricing. Number three, timing ... you could have gotten (it) cheaper (when market goes down). What's the hurry?
  
  "Before you go into any venture, you have to assess the risk," MSWG chief executive officer Abdul Wahab Jaafar Sidek said in Kuala Lumpur.
  
  He believes Maybank should not get compensation from Bank Negara Malaysia, if the deal fails to go through.
  
  Abdul Wahab, however, agreed that Maybank chief executive officer Datuk Seri Abdul Wahid Omar should be excluded from blame as he came on board after the acquisition was announced.
  
  Meanwhile, in an apparent response to MSWG's comments, Maybank said in a statement later yesterday that its board of directors "had conducted itself professionally in the best interest of the bank and its shareholders, adhering at all times to standards of good governance and integrity.
  
  "The proposed acquisition has been evaluated and considered by the board as a strategic initiative to strengthen Maybank as a regional bank," it added.
  
  Maybank said the proposal was presented to shareholders in an extraordinary general meeting on May 15, where they voted overwhelmingly in favour of the proposed acquisition.
  
  "As explained in an earlier announcement to Bursa Malaysia on July 29, the move by Bank Negara Malaysia to revoke its earlier approval for the proposed acquisition of BII followed the recent changes of the new regulation on Take-Over Rule IX by Badan Pengawas Pasar Modal dan Lembaga Keuangan, which was enacted on June 30 2008" it said.

I fully agree and I will go one step beyond and recommend that the directors should be sacked immediately!

Hey if you do agree, do post a simple comment on this blog posting, ok?

The whole deal was so shambolic!

Well I am not going to say more since many had been written on this utterly appalling and shambolic deal.

Here's one good posting: Just The Facts, Ma'am - Maybank's Purchase