Saturday, May 9, 2015
Daily Times Editorial May 10, 2015
Bank robbery The case of the KASB Bank’s merger with BankIslami gets murkier and murkier. The saga began in November 2014 when the KASB Bank was put on a six month moratorium by the State Bank of Pakistan (SBP) on the grounds of the bank being unable to meet the SBP’s capital adequacy ratio. While various banks were invited by the SBP to carry out due diligence in order to make offers for capital injection/restructuring of the bank to put it back on its feet, a relatively late entrant to this list was the JS Bank in December 2014, whose owners/sponsors are also the major shareholders of BankIslami. In the meantime, Chinese investors who had shown an interest in acquiring the bank were shunted out without cogent reason, the SBP claiming they did not meet the SBP’s criteria of banking experience, although at least one potential Chinese investor, the Industrial and Commercial Bank of China, is one of the biggest Chinese banks. After the moratorium was imposed on KASB, it also emerged that the bank was holding Iranian deposits that could not be returned because of the risk of inviting international sanctions. A scheme of amalgamation of KASB with BankIslami was forwarded to the KASB Bank sponsors in April 2015. This was examined by the KASB sponsors but neither shared with its shareholders nor were they consulted. After reports of some initial hesitation, Finance Minister Ishaq Dar gave final approval to the merger and it has now become a fait accompli. On the first day after the moratorium was lifted, the merged bank shelled out millions of rupees to its depositors. But there is no word so far what will be the fate of the KASB Bank’s shareholders, who have been hung out to dry without any clue what will happen to their investment. The merged bank is paying depositors out of the holdings of KASB but the shareholders are still clueless how their stake will be dealt with or satisfied. For example, will they receive shares of equivalent value to their original holding in KASB in the new, merged bank? What will be the formula for determining this equivalence? In the absence of such clarifications, the shareholders of KASB naturally feel hard done by. It is not that the SBP does not have the statutory authority to do what it has done, i.e. impose a moratorium pending final decision on how to proceed with the bank or producing a scheme of restructuring/merger of the bank with some other banking entity. All this is within the purview of the SBP under the Banking Companies Ordinance 1962. However, the other law in the field, the Companies Ordinance 1984, arguably in so far as it relates to the rights of shareholders in any entity, may override the Banking Companies Ordinance 1962 to the extent of protecting the rights of shareholders. This and the aspect of non-transparency and lack of consultation with the co-owners (shareholders) of KASB regarding the merger scheme do provide grounds for a legal challenge to what appears to be an arbitrary disposal of KASB Bank for a laughable Rs 1,000 on the debatable claim that KASB’s net worth is negative, to a bank whose owners/sponsors do not enjoy an enviable reputation in banking circles or on the stock exchange. Manipulation of the price of KASB shares just two days before the merger scheme was announced, in which the normal trading volume of the shares of 0.3-0.4 million galloped to 50 million, in the process doubling if not tripling the price of the shares, smells fishy. Trading was suspended when the merger scheme was announced, raising even more questions and suspicions regarding who benefited from this extraordinary surge in trading and the price of KASB’s shares. While the KASB shareholders are perfectly within their rights to legally challenge the whole scheme on the grounds of lack of consultation and transparency and the suspicion of ‘insider’ manipulation, it also throws into relief the role of the SBP and its governor, apart from Finance Minister Ishaq Dar. It would have been in the fitness of things had the SBP ensured the whole deal was conducted transparently to avoid the fingers of accusation and suspicion now being pointed at it, damaging the credibility of the central bank and the country’s financial managers. Pakistan is no stranger to banking scandals, but this bit of legerdemain risks being described as the biggest daylight bank robbery in our history.