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After BoV, Malita’s not for me

Monday, 23 Jul 2012, 05:34

 

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The rhyme is not intentional : there is hardly any of it in what follows !

I still can’t figure out how this government, any government for that matter, really stands to gain from an investment holding company like Malita plc, which is mandated to acquire, develop and manage government-owned tracts of land and real-estate properties and in which the government has bound itself to hold and retain at least a 70% stake.  Except, perhaps, to impress the gullible. 

With a market capitalization in the region of € 75 m , its listing on the Malta Stock Exchange is likely to carry a 3% weighting  -  quite substantial for a single entity, even though the state’s 70% holding will not be traded.

Not that the issuing terms are unattractive if one bothers to read and understand a very complex prospectus.  In fact they are quite alluring.  As an Initial Public Offer ( IPO ), Malita will attract the usual mob, spurred on by eager stock brokers, all convinced that the secondary market price to follow must be higher than the issue price.  At least, initially.

But will it persist?  Not necessarily.  Millions of Americans and others are still smarting after the launching of the glamorized Facebook  IPO , currently under investigation by the authorities.

My reason for boycotting Malita stems solely from a sense of disenchantment at the Finance Minister’s choice of chairmen/leaders for important institutions inside his portfolio, especially those outside the Civil Service as we know it.  Touted as ‘ near-supermen’ in their specialized field of operation, they manage to dazzle the Minister to such an extent that they can’t possibly do anything wrong or even injudicious in any decision they need to make throughout several years in incumbency.  Pride soon takes over from wisdom and experience : the end result is generally more deleterious than an admission of wrong-doing when pointed out   -   something which would normally go down well with all concerned, as to be expected occasionally in the world of business.

The best example that springs to mind is the Bank of Valletta, Malta’s largest bank in which the states hold 25% in ownership but 40% in effective control by arrangement with the Sicilians whose holding dates from the day BoV was set up nearly 40 years ago.

BoV’s annual profit reached a record high of € 102m in 2007.  Recession year 2008 caused an anticipated slump to € 69 m, which improved to € 82m in 2009 and again to € 99m in 2010, almost pre-recession level.  Excellent performance.  However,  2011 registered a drop of 35% to € 64m, completely unexpected.

Everyone in Malta, with the vocal exception of the bank’s directors, attributed at least € 30m of the € 35m slide to the MMProperty Fund fiasco.  And yet not a single expression admitting any mismanagement of clients’ funds by the bank’s executives and advisers, however unintentional.   Were it not for Finco’s Paul Bonello, the part-compensation handed to the investors, would not even have been considered by the bank, let alone paid up. 

Furthermore, instead of apologizing to Mr Bonello for the ungainly words hurled in his direction, BoV decided arbitrarily and without giving any reason, to withdraw his credit card facilities.  Puerility to the extreme.  No wonder the Minister is still searching  for someone willing to take on the vacant chairmanship.

Let’s now draw a contrast with BoV’s runner-up in our banking community of 30-odd establishments :  HSBC Malta plc.

Thirteen years ago HSBC paid the government the equivalent of € 191m to acquire its two-thirds holding in Mid-Med Bank.  In less than 3 years its share of the bank’s profits already exceeded its capital outlay.   Save for the 2 recessionary years, profits always moved up, currently the equivalent of € 100m p.a., despite selling its credit-card division, closing down 6 branches and paying off voluntary retirement schemes. (Maybe ‘ because of’ rather than ‘ despite ’ would be more accurate ! ).  There is even talk that HSBC is not satisfied with this level of profit and intends downsizing its scale of operations were it not for the embarrassment it would cause the government from which it bought the shares on the cheap in the first place.

Do you see now why I have no interest in taking up Malita shares ?

Maynard

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