HSBC Continental Europe, the French parent shareholder of HSBC Malta, has come to a binding preliminary agreement with CrediaBank Greece for the sale of its 70% shareholding in the Maltese bank for the sum of €200 million, equivalent to €0.793 per share.
This effectively means that HSBC is selling the bank for less than they had originally bought it a veritable quarter century ago. In fact, in 1999, the government’s 70% shareholding in what was Mid-Med Bank had been sold for Lm91 million, or €212 million.
It also means that the bargain price obtained by the Greek bank – considering the profits of €154 million (€100 million after tax) of the Maltese bank last year – effectively represents less than two years’ profits of the Maltese bank.
No wonder that the Greek bank’s share price on the Athens Exchange doubled in price from the time negotiations between HSBC and CrediaBank started on July 7 – apparently mysteriously known only to Greek investors well before the news entered legitimately the public domain – and the company announcement of September 16.
What springs to mind is the outcry by the Labour opposition at the time Mid-Med Bank was sold, accusing the government of selling the family silver for a pittance while ignoring that HSBC had put Malta on the global financial map.
Fast forward 26 years and it now results that the 1999 sale price was no pittance at all as, in spite of the inflation in the intervening period and the consistent growth of annual profits of the Maltese bank throughout the period, the price agreed now is even lower.
Of course, the real explanation why there has been zero interest from continental European and global banks is the perception of Malta as a high-risk jurisdiction that stinks of political corruption and patronage. Only banks from ex-Soviet satellite states such as Armenia and Georgia, and Victor Orbán’s Hungary, have shown interest, an interest that stood no chance of being favourably entertained in Frankfurt given the current geopolitical scene.
The announced agreement is conditional on the approval by the regulatory authorities involved, effectively meaning the European Central Bank. It is not a foregone conclusion that the ECB will rubber stamp the deal. An extended period of at least a year, possibly till the end of 2026, will probably be spent in minute scrutiny of the various aspects of the deal.
This deal represents the first foray of a component of the Greek banking sector outside their shores post the double bailout of Greece in the last 10 years. It remains to be seen how enthusiastic the ECB is to see such expansion or, indeed, whether they consider such a transaction as a potential increase of systemic risk in the eurozone.
This transaction now represents the first effective panning out in Malta of the workings of the EU directive on takeovers 2004/25/EC. The directive became effective in 2006 and had been transposed in Maltese law by way of chapter 11 of the Capital Market Rules issued by the MFSA as the national competent authority.
In terms of these rules, upon an eventual approval of the transaction by the ECB, CrediaBank would be obliged to make a mandatory public offer for the purchase of the 30% minority shareholders. The Capital Market Rules specify a complex mechanism of the minimum equitable price that must be offered, largely based upon the weighted average market price in the previous six months.
Minority shareholders are as usual the sacrificial lamb
The catch in this mechanism is that it would have kicked in only at the end of the approval process in a year’s time. This would have carried the risk that, by then, the selling pressure in HSBC shares – which price had already started haemorrhaging since September of last year when the market discovered that covert sale negotiations with APS had been started by HSBC in London since many months before – would persist and drive the price to ridiculous lows.
It is therefore comforting that the company announcement reveals that an MFSA exemption from the standard rules has been obtained in order that the equitable price could be fixed as of now at €1.44 rather than allow the price in suspension for an indefinite future.
Minority shareholders will be under no obligation to accept the eventual mandatory offer.
On the other hand, if the large majority of minority shareholders accept the offer, CrediaBank may well increase their majority share to beyond 90% of the total voting rights of the Maltese bank, which threshold would entitle them to forcibly squeeze out any remaining shareholders, and at the price of €1.44.
In effect, minority shareholders are as usual the sacrificial lamb, with a choice, but only a Hobson’s choice.
It is positive that CrediaBank has committed to retaining the bank’s employees on same conditions for at least two years from the completion of the transaction.
It is also positive that it has been announced that HSBC Malta will continue to pay quarterly dividends by distributing 60% of the consolidated profit after tax in the intervening period to completion of the deal. This limits in some way the profits that will accrue between now and the final transaction in favour of the Greek buyer against no additional increase in price.
What makes local equity investors aghast, of course, is the realisation that the announced price of €1.44 per share shortchanges them by 16% from the current audited net asset value per share of €1.71.
From a macro and national point of view, it adds further insult to injury to realise that, after Maltese taxpayers contributed to hundreds of millions towards the EU’s massive grant and loan bailouts in the last 10 years of the Greek economy, Greek business outfits are now buying Maltese enterprises at a discount to audited book value.
The least CrediaBank could have done to ease the pain, and the humiliation of the Maltese investor, and start on a better footing its Maltese adventure, is to have coughed up an additional €28 million and offer a price equivalent to the net asset value of €1.70 per share. CrediaBank is still in time to do this and be well advised to do so. The Capital Market Rules, in fact, foresee the possibility of a revision of the offered price in order to increase the consideration.
With the advent of CrediaBank to the Maltese shores, the number of domestic banks will not have been reduced and consumer competition safeguarded. But the replacement of A-rated global bank HSBC with a Greek bank – fifth in size and holding a B3 non-investment grade credit rating – is, by any stretch of the imagination, a regression in the quality of the Maltese banking scenario.
It is indeed mind boggling how the Maltese minister of finance is quoted to have concluded that CrediaBank “ticked all the boxes”.
Paul Bonello is managing director of Finco Treasury Management Limited.