Issues behind Southern Bank-CIMB pettifog
I have been following with interest the events relating to the proposed merger of CIMB and Southern Bank Bhd (SBB).
I cannot help but sympathise and emphatise with Tan Teong Hean who is faced with a predator with strong political connections and favourable government policies, bent on acquiring the bank. There is no security even at his level of position and control.
There is no doubt that the bank does not belong to Tan given the strict rules governing banking institutions, on top of bumiputera participation requirements. If my memory serves me right, Azman Hashim was the only person technically owning a bank all by himself for a short time when he first took over Arab Malaysian Bank.
Only recently, there were comments about how SBB's major bumiputera shareholders were allotted rights to subscribe to shares at a favourable price compared with the market. With the benefit of hindsight, would it have been better if those shares were allotted to a wider spread of bumiputera shareholders now that the beneficiaries have sided with the predator in the present tussle?
SBB's problem seems to arise from being too successful. It was reported that Tan has been in control for the past 18 years and the success of the bank must be attributed to his management skills and his team. As an example, I was told its asset management company started from a scratch and now manages funds exceeding RM7 billion.
Where the key to a good property is 'location, location and location', for a bank, it is 'integrity, integrity and integrity'. Some of our Malaysian banks like Bank Bumiputera, Sime Bank and Bank Islam have shown how the lack of credit controls bled the banks to insolvency. Added to this, there was no accountability as to who were responsible! The common factor among the three banks was political control and/or interference.
It seems to me, for a person running a business in Malaysia, besides the usual business risks, he has to watch out for political interference too.
Kah Motor lost its cosy relationship with Honda, also for being too successful. To say that it was a natural progression was proven otherwise when the company got rid of all their Honda company cars soon after the re-structuring! Most people believe there were political manoeuvres involved but which I would describe as arm-twisting.
Wonder what would happen to Genting Highland's casino licence after Lim Goh Tong. If not for religious reasons, the company would have been restructured long ago. Phileo Bank's ex-founder was reported to have said that he was forced to give it up. Like MUI Bank, many people attributed this to his earlier close association with politicians who are out of favour. I wonder what was the reason for Rashid Hussain's departure from RHB, if not political.
A good example to illustrate the chain effect of government policies is Proton sales. To counter poor sales, credit facilities were relaxed to such an extent that the hire purchase tenure was increased to nine years. It was also reported that some purchasers were actually given a sum of RM500 from the loan sum to drive away the new cars.
Not surprisingly, we got feedback that finance companies were reluctant to repossess cars for lack of storage space and buyers. Already, there is a bank known not to repossess your car so long as you pay one month to stall the process. The ballooning non-performing loans are waiting to burst.
The SBB tussle is becoming more and more interesting. There is more than meets the eye, more like a proxy war among powerful parties. Tan was reported to have said that SBB was forced to 'marry' and they are trying to choose their own partner. This means the pressure is already on for the 10 existing banks to merge into the originally intended six, to meet the challenges of globalisation.
Now we can see the power of politics on commercial activities. Bank Negara rules require the Central Bank's approval before an intended party can negotiate with the target bank. Though the rules are meant to control in an orderly manner any offer to take over another bank, the disadvantage to the minority shareholders is obvious.
For the simple fact that CIMB is managed by a brother of our deputy prime minister, the application of the rules by Bank Negara must not only be fair but seen to be fair. The Central Bank's rejection of SBB's offer to acquire Asia General has already been taken as biased by some quarters.
I do not buy the reason given by CIMB's Nazir Razak that the price offered for SBB shares was good compared with the share prices of SBB over the last three years. For the same period, most companies listed on Bursa Malaysia were under-valued, even in terms of simple net tangible assets basis.
The latest events seem to suggest the matter is likely to end in bitter litigation. Meanwhile, people will also be watching if Bank Negara would approve another party proposed by SBB.