Banking and capital market regulators are obliged to ensure that investors are treated fairly. Decisions taken behind closed doors of banks’ head offices must not put investors’ wealth at risk by being shrouded in secrecy for too long.
The potential exit of HSBC from the local banking market raises many issues that must be addressed professionally, leaving no space for speculation and confusion because of inadequate public communication through company announcements. When this rule is not followed, the rumour machine takes over, creating confusion and, occasionally, panic.
Some were not surprised when HSBC announced a “strategic review” of its 70 per cent shareholding in the Malta subsidiary. For some time, HSBC has wanted to rethink its business model and contract the activities it considered no longer a strategic priority. It was a question of time before this strategy rethink would affect the Malta operations.
Company announcements are meant to be clear communications to inform interested parties, especially shareholders, of intended actions that may affect the value of their shares. When legalese language is used in company announcements, it often confuses laypeople leading to rush actions.
Unfortunately, the company announcements of HSBC have lacked clarity, gave rise to speculation and led some shocked shareholders to dump their shares on the stock exchange. Just after HSBC’s announcement, the bank’s shares dropped by 18.5 per cent, indicating that shareholders felt insecure about what the bank’s exit from the local market would mean for their investment.
When the rumour machine was unsurprisingly set in motion, it was assumed that APS Bank, the third largest bank in Malta, would be taking over the HSBC business. APS delayed its reaction to the market rumours. When it eventually communicated in a company announcement, it did so in an equally unclear way by not denying or confirming that it was interested or negotiating the takeover of HSBC.
HSBC and APS are defined as “systemically important financial institutions” because of their influence on the local banking market. One implication is that they are directly supervised by the ECB jointly with the MFSA. The Malta Stock Exchange also regulates them as they are both listed companies. Were these regulators satisfied with the way both banks communicated with the market?
Why was trading in these banks’ shares not suspended temporarily?
If the APS takeover ever materialises, more questions will need to be asked to ensure that the interest of shareholders and the public, especially depositors, are safeguarded in the way the merger will evolve. The public must also be reassured that the market will not be dominated by two large banks, BOV and the newly merged bank, with negative consequences on competition.
Conventional business logic often concludes that, in a takeover, a large enterprise absorbs a smaller enterprise with good growth prospects or valuable assets that enhance the long-term outlook of the merged businesses. While APS has grown fast in the last decade, it is significantly smaller than HSBC. Moreover, its business model is also quite different.
APS, for instance, is strong in mortgage lending, while HSBC still has significant commercial lending exposure. Nevertheless, there is no reason to believe APS has not recruited the best advisers in the business to plan a way forward.
The ECB will undoubtedly be going through the takeover plan to determine whether the buyers of the bank have the required strategic and operational management expertise to manage the more significant merged bank successfully.
Shareholders and clients need more clarity surrounding HSBC’s exit plans.
Banks involved in takeover negotiations and banking and capital market regulators have a duty to be more transparent when informing the public about decisions being considered.