Issue link: https://maltatoday.uberflip.com/i/1526669
6 maltatoday | SUNDAY • 15 SEPTEMBER 2024 NEWS 'Unlikely APS has firepower for HSBC buy' EVIDENTLY once more, the law in Malta acts as a façade, where an up- per level of political, economic and social life gives the impression that all is done by the book, but at a sec- ondary level, the real business deci- sions are being taken. Where was the transparency, I thought to myself, intended by an- ti-market abuse legislation that was meant to ensure the integrity of financial markets and enhance in- vestor confidence? I found it hard to believe this was some sham. HSBC Malta then issued a com- pany announcement saying it was unaware of the negotiations, that it was seeking clarification from HSBC Holdings, and later another announcement that the review pro- cess was at an early stage and no de- cisions had been taken. Had HSBC been wrong-footed by a studied and intentional release of rumours? APS, meanwhile, only issued an announcement by end of market business on Thursday 12 September which neither denied nor confirmed the rumours, emphasising the re- gard for confidentiality. The crux of the matter, however, is that anti-market abuse legislation is based on the pillar of the timely pub- lication of precise, clear and truthful price-sensitive, inside information that is neither ambiguous, irrelevant or confusing to the public, to avoid the establishment of a false market in its securities or of other linked listed securities. And in my opinion, APS's compa- ny announcement was everything other than what the EU Market Abuse Regulation and the Malta Stock Exchange Listing Rules dictate should happen. Issuers have no such latitude on company announcements. The law does require timely, precise, clear and truthful information that is not ambiguous, irrelevant, misleading or confusing to the general public. Besides, the European Securities and Markets Authority has been clear that if and when a publication, for example the WhosWho.com press report, or even internet posts or market rumours publishes inside information, an issuer is expected to react and respond to that rumour if that piece of information is suffi- ciently accurate to indicate the con- fidentiality of this inside information is no longer ensured. ESMA makes clear that a reaction of staying silent or "no comment" by the issuer in these circumstances is not acceptable. And APS's company announce- ment had nil substantive informa- tional value, adding no further ob- jective detail other than indirectly – albeit intentionally – confirming that APS had been brewing the cof- fee for some time already. In all this, the MFSA, as the nation- al competent authority entrusted with the administration and super- vision of the anti-market abuse leg- islation, was of course conspicuous by its complete absence throughout. Consequences of HSBC exit An HSBC exit from Malta would further isolate the island in the capi- tals of finance. Inevitably it is a further blow to Malta's not-so-exquisite reputation, especially after the FATF greylisting and the daily deluge of political scan- dals. A Malta government spokesmen expressed the view they would rath- er have an international buyer take over HSBC Malta. This must be one of the otherwise rare occasions where I would have to agree with the government. The fly in the ointment is that it is most unlikely that top-tier banks have any appetite for a presence in a market like Malta, which apart from being small is a high-risk jurisdiction that can be a source of embarrass- ment for their image. HSBC's exit would leave Maltese banking consisting of virtually en- tirely local players: less diversified and therefore less resilient in times of crisis. There is also the anti-trust aspect: more concentration of banking in the same hands and less competi- tion, which is obviously not good for financial consumers. Malta will no longer have an international play- er of repute, however gained, as an ambassador for potential overseas investors. I find it unlikely that APS has the firepower for such a bold acquisi- tion. HSBC has maintained average net profits of circa €100 million, with a potential for much more had it not been so conservative; and an expect- ed price-earnings multiple which I cannot imagine to be anything less than 6 to 8. APS is a small bank, currently with the lowest CET ratio, requiring it to make a rights issue in the short term to maintain its current operations and adhere to capital adequacy rules. To purchase the 70% shareholdeing from HSBC Holdings, it would have to make an offer on similar terms to the remaining shareholders, the 30% held by the general public. An acquisition financed by bail-in- able bonds or subordinated bonds does not go down well with regula- tors: such unsecured bonds of high value cannot be raised in Malta, both because of its size as well as because of the complexity of the securities. Witness how Bank of Valletta had to list its rather large bail-in-able bond issue on the Irish regulated market. Regulators expect buyers to have adequate risk capital as a specific per- centage of the bank's risk-weighted assets on their balance sheet, rather than additional leverage to finance their acquisitions. Finally, the regulator in this case is not the docile and pliable MFSA, but the European Central Bank. I am a practicing Catholic, al- though undoubtedly, I leave much to be desired. Yet I'd rather not have the Maltese Church owning and controlling what would be the largest bank in Malta (even one of the repeated episodes of scandal at Vatican bank IOR, incidentally, has a strong Maltese ingredient). But I'd rather have our church de- vote its attention to recover just a small part of the large mass – some say 70% of the population – that abandoned it, rather than have its financial institution, historically per- ceived as a means for its social mis- sion, contrive ways of acquiring 70% of HSBC Malta's shares to satisfy someone's delusions of grandeur. Paul Bonello is Managing Director of Finco Treasury Management Ltd. His views are made in his personal capacity and any opinion expressed is his and his alone. OPINION CONTINUED FROM PAGE 1 Similarly, a spokesperson for Gozo Bishop Anton Teuma said the bishop "has no comments to make in this regard". The Archdiocese of Malta is the majority shareholder in APS Bank, owning a 55.2% stake through its wholly owned company, Arom Holdings Ltd. The Diocese of Gozo owns 12.7% of APS with the rest of the shareholding held by the public and institutional investors. News that APS is in talks to buy HSBC has caused a stir in ecclesiastical circles but so far there has been no public direction from church leaders. Nonetheless, sources close to the Curia have told MaltaTo- day that Gozo Bishop Anton Teuma has privately expressed disagreement with the possible deal, while the Maltese arch- bishop set up a group of experts to advise him on the matter. "The predominant advice Charles Scicluna appears to have received was against the deal and it seems the Archbishop is of the opinion that if the bishops have no common agree- ment between them, the deal should not go through," the sources said. The private position adopted by the bishops jars with the enthusiasm shown by the APS board and management, which is in favour of the takeover. The sources said it was HSBC that first approached APS several months ago and the Maltese government was aware of the negotiations. Last week, APS did not deny reports it was engaged in "ad- vanced talks" to acquire HSBC Malta after the latter said its parent company was conducting a "strategic review" of its business on the island. For years now HSBC has been pulling out from several markets internationally to concentrate on its business in Asia. The announcement that HSBC was considering all its option in Malta came as no surprise. However, financial analysts were surprised by the persis- tent rumours it was APS Bank, a smaller financial institu- tion, that was interested in acquiring HSBC Malta. HSBC Holdings, the parent company, owns 70% of the shares in its Malta branch with the rest being held by the public. But financial observers speaking to MaltaToday noted that any deal brokered by APS management will require share- holder approval. APS's Memorandum and Articles of Association, states that any acquisition the bank may make will require share- holder approval in an extraordinary general meeting. Any resolution proposing that APS buy HSBC Bank Malta would need 75% backing from shareholders to pass. "Any offer APS will make, or agreement it reaches with HSBC, will have to be cleared by its shareholders first, apart from regulatory approval, and the Archdiocese of Malta on its own has the power to block the move given its majority shareholding," the observers noted. Furthermore, APS Bank will have to raise in access of €300 million to acquire HSBC's 70% shareholding based on cur- rent market data. It is not an insignificant amount for a bank the size of APS. Observers noted that the APS board is only authorised to issue bonds worth €50 million without shareholder approv- al. "Any bond issue to raise capital for the purchase of HS- BC will have to be approved by shareholders," the observers said. According to APS's annual report for 2023 Arom Holdings Ltd, wholly owned by the Archdiocese of Malta, and the Di- ocese of Gozo are the only two shareholders holding more than 5% in the bank. No public direction yet from church leaders on possible APS takeover of HSBC Stockbroker Paul Bonello says the paucity of information on the HSBC-APS talks raises serious questions as to the integrity of the Maltese financial markets and how they are regulated Paul Bonello