Monday, May 11, 2015
Daily Times Editorial May 11, 2015
Collateral damage The Securities and Exchange Commission of Pakistan (SECP), the regulator of the country's stock exchanges, has finally jumped into the fray surrounding the KASB Bank's merger with BankIslami (more accurately a very hostile takeover if not swallowing whole). The SECP has written to the State Bank of Pakistan (SBP) on behalf of equity investors to review the deal. Considering that the issue of KASB Bank's future has been on a lot of people's radar for some time, including the just concluded six month moratorium on the bank imposed by the SBP pending the restructuring/merger with some other bank (BankIslami, it now turns out), it seems surprising that the SECP has suddenly woken up after the merger is a fait accompli. The legitimate question to be asked is what has roused the seemingly asleep SECP now? It appears that it is the clamour of equity investors that has compelled the SECP to finally intervene, albeit it remains to be seen how efficacious this late entry may prove. To the earlier relatively muted voices of the ignored and abandoned shareholders of KASB therefore, has been added the much louder and vociferous chorus of equity investors through the SECP, many of whom have had their fingers burnt in this whole sorry episode. The SECP wants compensation for the losses suffered by equity investors. Meanwhile the shareholders have been left in the lurch, their interests unprotected and unsafe guarded. Millions have been lost in the process. The whole merger scheme is smelling fishier than ever and the stink is growing with each passing day. The SECP says in its letter to the SBP that it was not taken into confidence by the latter regarding the moratorium or merger. The SECP reminds the SBP that it has a role to play regarding investors' interests. Ignoring equity traders' losses would engender negative comment, criticism and suspicion, all of which would inevitably combine to shake confidence in the banking sector and the economy as a whole. The SBP has placed the interests of the 150,000 depositors of KASB Bank worth Rs 57 billion as its top (if not only) priority and completely ignored and forgotten about the shareholders of KASB. If the SECP's argument regarding the interests of equity investors is valid, why can the same logic not be applied to the shareholders' interests? Consider also the sordid and unprecedented manipulation (arguably insider trading) of KASB's shares in the two days preceding the announcement of the merger. In just these two days, the normal trading volume of KASB shares went up 10 times and more and the price flipped up to twice or thrice its previous level. By no stretch of the imagination can this be considered ordinary. It is difficult to resist the conclusion that somebody made a killing based on privileged information. The cast of usual suspects is headed by the KASB sponsors/owners and the SBP since these were the only parties with knowledge at that point of the impending merger deal. If nothing else, this should be sufficient grounds for a thoroughgoing probe and investigation into the whole affair, taking into its purview the whole dubious manner of rejecting Chinese potential investors in favour of the inequitable and unjust takeover of KASB by BankIslami, the non-transparent and secretive manner (excluding totally the shareholders) of agreeing the merger, and the injustice to shareholders and equity investors. A class action suit by the robbed shareholders and hard done by equity investors could lie, while a suo motu notice by the superior courts may not be out of place in this instance.