Financial analysts see CrediaBank’s HSBC move as good news but not ideal

CrediaBank’s likely takeover of HSBC is good news, although it does not make up for the blow of losing a globally recognised banking giant, financial experts agree.

Times of Malta spoke to several finance experts in the wake of CrediaBank being named the preferred bidder in the nearly year-long sale of HSBC’s Maltese subsidiary, with the deal subject to regulatory approval from the European Central Bank and MFSA.

Economist Philip von Brockdorff described the news as “a positive development,” arguing it was crucial for Malta to find a European buyer that already operates within the EU’s banking rules. He pointed to banking regulations developed in the wake of the financial crisis (known as the Basel III framework) which set out stringent rules for banks operating across the EU, ensuring that they have enough capital and liquidity to cover their needs and that they are cutting down on bad loans.

These rules, von Brockdorff argues, provide some peace of mind to shareholders and financial markets alike.

“You never know whether non-EU banks are playing by these rules,” he said, referring to bids submitted by banks from outside the EU.

Stockbroker Paul Bonello largely agrees, saying, “It is a relief that we finally have interest from an EU member state in the eurozone and with no links to the Kremlin. It is multiple times better than interest from Armenian and Georgian banks, which hardly stood a chance with the ECB”.

However, Bonello argues that going from HSBC to CrediaBank is a drastic step down.

“Instead of a global bank, we are going to have a much less significant bank in terms of international stature,” Bonello says, pointing to the latter’s B1 credit rating. “We are now very definitely in junk territory, as they would describe it in US jargon.”

Bonello also questions the wisdom of welcoming a bank from Greece, “a country that defaulted twice in recent years”.

“What will happen to the Maltese subsidiary if its parent company defaults again?” Bonello asks, questioning whether the ECB will be happy with this development or whether it will view it as “a potential extension of systemic risk”.

Von Brockdorff, who sits on the MFSA board, says whether CrediaBank passes ECB’s scrutiny will be “the ultimate benchmark”.

“Given that this is an EU bank, my personal opinion is that I don’t think there will be any problems,” von Brockdorff says, arguing that the Greek government’s stake in the bank provides additional reassurance.

Another industry insider, who spoke to Times of Malta on condition of anonymity, described the prospect of CrediaBank’s takeover as “not necessarily ideal,” but undoubtedly the best option on the table.

“I would prefer having HSBC remain in Malta because they are a well-respected international bank,” they said.

However, “having an EU regulated bank buying HSBC’s stake is positive,” they added. Had some of the other “very concerning” bids been accepted, “it would have been a slap in the face to everyone that has worked to restore Malta’s reputation”.

Despite the Greek financial system’s well-documented troubles over the years, things have taken a turn for the better, they insist.

“Greek financial institutions have learned their lessons and they’re closely watched, their regulators are as good as ours,” the insider said.

HSBC’s widely reported struggles to find a credible buyer is ultimately down to the blows to Malta’s international reputation over the years, Bonello says.

Regardless of whether the authorities admit it or not, he argues, the lack of interest shown by top tier banks "demonstrates once more that Malta is still considered a high-risk jurisdiction, despite exiting the greylist”.

Others, however, point to Malta’s small market as the key factor.

“I never expected Tier 1 banks to come to Malta because the scale of the market doesn’t make sense,” von Brockdorff says, pointing to the financial burden imposed by banking regulations and due diligence processes.

“Ultimately, profits trump all those concerns,” one industry insider said, when asked whether Malta’s reputational struggles played a part in the sale.

“Malta is too small to push the needle in any direction” when it comes to the world’s major banking names.

“Why bother? It’s simply not worth the effort,” they said.