Shocking behaviour of banks

Has anything really changed since the 2008 financial crisis? Below articles are simply shocking.

From RollingStone:

On Wednesday, Barclays won the race to reach a deal with U.S. and British regulators, beating UBS, which was reportedly the first bank to begin cooperating with international antitrust authorities. Barclays agreed to pay at least $450 million to resolve government investigations of manipulation of Libor and the Euro interbank offered rate (or Euribor): $200 million to the U.S. Commodity Futures Trading Commission, $160 million tothe criminal division of the U.S. Department of Justice and $92.8 million to Britain's Financial Services Authority.

Trader: "Can you pls continue to go in for 3m Libor at 5.365 or lower, we are all very long cash here in ny."

Libor rate submitter: "How long?"

Trader: "Until the effective date goes over year end (i.e. turn drops out) if possible."

Submitter: "Will do my best sir."

This is unbelievable, shocking stuff. A sizable chunk of the world’s adjustable-rate investment vehicles are pegged to Libor, and here we have evidence that banks were tweaking the rate downward to massage their own derivatives positions. The consequences for this boggle the mind.

For instance, almost every city and town in America has investment holdings tied to Libor. If banks were artificially lowering the rates to beef up their trading profiles, that means communities all over the world were cheated out of ungodly amounts of money.

And another one bites the dust:

The Royal Bank of Scotland is about to be fined $233 million (£150 million pounds) for its role in the Libor-rigging scandal. It joins Barclays as the first banks to walk the plank in what should be, but so far is not, the most sensational financial corruption story since the crash of 2008.

A much longer article from the same website: The Scam Wall Street Learned From the Mafia


And another article from Bloomberg:

More than four years after the financial crisis began, it’s so widely accepted that many of the world’s banks are burying losses and overstating their asset values, even the Bank for International Settlements is saying so -- in writing. (The BIS’s board includes Federal Reserve Chairman Ben Bernanke and Mario Draghi, president of the European Central Bank.) It fully expects taxpayers to pick up the tab should the need arise, too.

In this respect, little has changed since the near-meltdown of 2008, especially in Europe. Spain has requested 100 billion euros ($125 billion) to rescue its ailing banks. Italy, perhaps the next in line for a European Union bailout, is weighing plans to boost capital at some of the country’s lenders through sales of their bonds to the government.

Those bank rescues almost certainly won’t be the last. All but four of the 28 companies in the Euro Stoxx Banks Index (SX7E) trade for less than half of their common shareholder equity, which tells you investors don’t believe the companies’ asset values. While it may be true that the accounting standards are weak, the bigger problem is they are often not followed or enforced.

The lack of transparency and credibility in banks’ balance sheets fuels a vicious cycle. When investors can’t trust the books, lenders can’t raise capital and may have to fall back on their home countries’ governments for help. This further pressures sovereign finances, which in turn weakens the banks even more. The contagion spreads across borders. There is no clear end in sight.

MAS, where is the transparency? (2)

In addition to the previous posting on MAS, an new announcement has been made to the Bursa Malaysia.

a)        the parties in KLHC Suit No: S3-22-634-2006 will complete the Sale and Purchase Agreement dated 16 June 1997 (“SPA”) in which MAS purchased certain lands in Langkawi. MAS had sought to enforce the SPA by way of specific performance. This will result in the remaining land purchased (a 21 acre portion of the land held under HS(D) 623, Mukim Ayer Hangat, Daerah Langkawi) to be effectively transferred to MAS upon payment of the agreed balance purchase price of RM4,001,622.50 that is still outstanding under the SPA;

b)        all Counter-claims in KLHC Suit No: S3-22-634-2006, KLHC Civil Suit No: S7-22-487-2006 and SAHC Civil Suit No: MT3-22-365-2006 are to be withdrawn against MAS and parties related; and

c)        MAS and parties related will withdraw its claims in the above legal suits.

There is no adverse financial or operational impact on MAS arising from the settlement. MAS will not be incurring any financial or operational loss.

I find the announcement puzzling at best, and it throws up more questions than it answers, for instance:

• What are the details of the SPA of 1997?
• Why does it take 15 years to complete the SPA?
• The claims against TSDTR and others were very specific and serious in nature, totalling many hundreds of millions of RM, why are they settled with a parcel of 21 acre land which even has to be purchased?

The claims, as detailed in the 2011 year report:

The Annual General Meeting of MAS has just been held, so shareholders have to wait almost one year to air their possible grouses regarding this settlement.

I doubt if they are happy with the performance, this is the 5-year chart of MAS:

Why SGX should review its rules

Letter in the Strait Times from Mak Yuen Teen, Assoc. Prof. at NUS Business School. He often comments on CG issues, more articles of the "Centre of Governance, Institutions and Organisations" can be found here.


I refer to the June 18 letter by Mr Gary Teo ('SGX shouldn't ignore investors' delisting concerns') and the reply by the Singapore Exchange

('SGX explains due diligence provisions in delisting protocol'; last Friday).

These relate to SGX-listed companies which fail to provide an exit offer when they are directed to delist after they fail to satisfy the criteria for removal from the SGX watch-list.

The SGX's reply states: 'In the event that a company faces the prospect of an involuntary delisting, the boards and management should present an exit alternative.

'Where it is not possible to do so, boards and management must disclose the reasons and explain to shareholders.'

However, this does not appear to be what the SGX rules say and what was presented when the SGX consulted the public on the introduction of the watch-list in 2007. Rule 1306 in the SGX rulebook for mainboard companies states that if the SGX exercises its power to delist a company, the issuer or its controlling shareholder(s) must comply with the requirements of Rule 1309.

Rule 1309 requires that a reasonable exit alternative - which should normally be in cash - be made and the issuer should normally appoint an independent financial adviser to advise on the exit offer. There is no provision for the board and management to disclose the reasons and explain to shareholders if no exit offer is made.

In other words, it appears that SGX has relaxed the application of the applicable rules presumably because it now realises that it is difficult to enforce an exit offer when a company is directed to delist.

Indeed, we are seeing repeated cases of companies being delisted without an exit offer.

Allowing the board and management to explain why no exit offer is possible, without additional safeguards to ensure that these reasons are bona fide, can lead to abuse.

Without an exit offer, minority shareholders will be holding illiquid shares in an unlisted company which is subject to far less stringent reporting and accountability requirements, and therefore with relatively little protection for them.

Since the watch-list and directed delisting regime has deviated from what is spelt out in the listing rules and what the SGX consulted on before it was introduced, I believe that the SGX should suspend its application and review the rules.

Link to the Straits Times website.

MAS, where is the transparency?

MAS made an announcement regarding the suit with former executive chairman Tan Sri Dato' Tajudin Ramli (TSDTR). This is an imporant suit, and it has been dragging on for a long time (TSDTR was attached to MAS until 2001, 11 years ago). The content of the announcement:

"We wish to announce that MAS and TSDTR have reached an agreement to settle the legal suits concerned on terms. As a result, the legal suits and all counter-claims in the legal suits against MAS will be withdrawn."

Is that all the information the shareholders of MAS receive? Where is the transparency in this?

According to this article:

"(Tajudin) has agreed to surrender valuable land in Langkawi where the Four Seasons Hotel stands,” a court source told The Malaysian Insider on condition of anonymity.

But if that is true, why is it not revealed in the announcement to Bursa Malaysia?

From a corporate governance point of view, this looks not good.