LGE on Maybank BII scandal

This is a segment of speech by Penang Chief Minister and Bagan MP, Lim Guan Eng on the 2009 Budget in Parliament today.

  1. #1 by Godfather on Tuesday, 21 October 2008 - 9:33 pm

    It’s not too difficult to figure out if there’s some hanky panky involved in this deal. HSBC has just announced that it is buying control of Bank Ekonomi which, unlike BII, has never been insolvent. I am still trying to figure out what the price-to-book is on the HSBC deal, but if it is nowhere close to the 4.3 times price-to-book that Maybank has agreed to pay for BII, then Najis or Nor Mohamed Yakcop has to answer to the rakyat.

    Don’t know which is worse – hanky panky or stupidity.

  2. #2 by HJ Angus on Tuesday, 21 October 2008 - 9:58 pm

    It could be a combination of both!

  3. #3 by peterchiang on Tuesday, 21 October 2008 - 10:20 pm

    Waht about greedy?

  4. #4 by sudokuku on Tuesday, 21 October 2008 - 10:57 pm

    towering malaysian, cemerlang, gemilang & terbilang, even buy over bank also much pay the highest price market.

  5. #5 by Jeffrey on Wednesday, 22 October 2008 - 12:49 am

    I don’t know who (besides Temasek’s Fullerton and Kookmin) is making money out of this deal but this Maybank’s foray into Indonesian bank BII is fraught with risks, notwithstanding the 15% discount given and not just because of the high price tag at what Godfather said was 4.3 times price-to-book value.

    Maybank wants to join global banks’ band wagon to converge on Indonesia to take advantage of its so called strong growth fast-expanding loans and higher earnings potential. Maybank is excited with BII’s 2 million customers and more than 250 branches (plenty of free float on current accounts!)

    But the timing shucks : there is a global financial crisis brewing . Ah here’s the excuse, it is long-term investment.

    One important factor to consider is Indonesia’s corrupt culture that spreads to banking….You trust the valuers there? You trust the credit culture of the BII bank?

    Analysts talk of loan-to-GDP ratio in Indonesia being 21% every good compared to Thailand’s 76 percent and South Korea’s 79 percent, providing huge potential for further loan growth.

    Hello, how about non performing loans (NPL) or potential NPLs due to weak credit culture exacerbated by Global and son regional financial crisis???

    Could Maybank’s accountants/auditors estimate in their due diligence the effect of local corrupt culture on potential NPLs 1 year down the road???

    Will there be any price adjustments and further rebate if within defined time asset quality suddenly plummets due to NPLs exploding???

    What’s the point of BII’s 2 million customers if 1 million soon default without collateral or if with collateral, suddenly a wave of asset deflation sweeps compounding the poor security documentation, the gross over valuation of collateral values? You want to sue the valuers? They take the first flight out to Singapore where they have fat bank accounts!

    If you want to institute legal proceedings against your 1 million borrowers, some of the most sizable will have enough connection in the courts and the police to delay your action for 20 years! Those without may resort to violence, or even hang the decapitated head of a cow, pig or dog on the front door of your bank!

    It is not like buying a bank in (say) Singapore with Basel II credit culture transparent accounting and governance….

    If there’s so much potential, you think Temasek will sell to you? Singapore is in financial services and Temasek’s pockets are deep : they’re not selling because they are hard up for cash. Maybe they have better foresight…..

    Certainly they have more experience : they got burnt in Thailand’s Thai Danu, some years back where asset quality suddenly plunged in span of 1 year after acquisition. They went into Hong Kong’s Dao Heng Bank Group two years ago. They might be passing hot potato to Maybank.

    Soon Maybank would have to incur more specialists pay expatriate salaries to go to Indonesia to reschedule and restructure loans and do a lot of standstill agreements! :)

    Don’t get Petronas or EPF to bail you out – when you get into severe trouble there.

  6. #6 by bclee on Wednesday, 22 October 2008 - 1:56 am

    in the midst of financial meltdown we still acquire the ailing bank.
    and them the government pinjam money from EPF without tabling discussion in parliament.
    what is the accountability of our country minister?
    we rescue bank indonesia for what reason? paying 4.3 time book value.alamat pecahlah
    something is fussy here.hope YB Lim please keep pressing for more detail.

  7. #7 by Godfather on Wednesday, 22 October 2008 - 6:37 am

    If memory serves me right, Fullerton Holdings (a Temasek company) originally teamed up with Daim to bid for BII many years back. BII was nationalised by the state when it got into trouble during the Asian financial crisis, and a subsequent audit found that the bank was previously run like the original owners’ piggy bank. Fullerton must have subsequently bought out Daim’s 10 – 15 pct stake in BII.

    We will never know if Daim made any commitment to Temasek about the eventual take-out by a Malaysian GLC. As Jeffrey pointed out, Temasek is not in the habit of selling assets that work well. Furthermore, sources in Indonesia now say that Maybank was the sole bidder at the second stage of the bidding process.

    Bolehland’s track record in owning and managing foreign firms is abysmal. Tenaga bought the ill-fated Liberty power plant in Pakistan at an inflated price and had to write down the value of that investment. Tenaga bought a coal mine in Indonesia (again at an inflated price) and had to write it off totally. Halim Saad bought National Steel in the Philippines with a bank loan, and the banks involved all wrote off a combined exposure of US$800 million.

    The final word has to be with the shareholders of Maybank – and their silence so far is deafening. Maybe it also explains why foreign investors have been selling out of our stock market.

  8. #8 by HJ Angus on Wednesday, 22 October 2008 - 7:52 am

    But TEMASEK was forced by new regulations to get rid of this bank as it is only allowed control of one bank.
    That means it was a forced seller but the way things worked out, Maybank became a “forced buyer” or it would lost face to forego millions of ringgit in non-refundable deposit.
    How stoopid can one get?
    So far only a group of shareholders have made some noise but after that all is quiet……zzzz

  9. #9 by Jeffrey on Wednesday, 22 October 2008 - 8:30 am

    HJ Angus,you are right about Temasek in part required to sell off its stake in Bank International Indonesia (BII) because it already owns Bank Danamon in Indonesia. What I emphasise is that doing business has hazards in Indonesia. Those guys change laws midway, suddenly they come out with some anti trust, anti monopoly regulations on strategic industries. For exampleTemasek acquired via Singtel (in which it has 54.15% equity stake) the “cream” of the top 2 cellular phone corporations in Indonesia ie 35 percent stake in Telkomsel, while Singapore Technologies Telemedia (STT) which is wholly owned by Temasek controls 75 percent of Asia Mobile Holdings which in turn has a 41.9 stake in Indosat. On 13th May this year Telkomsel was found guilty of violating article 17 of the anti trust law 5/1999, particularly of abusing its dominant power to determine the interconnection tariffs among operators…..

  10. #10 by Jeffrey on Wednesday, 22 October 2008 - 8:49 am

    But this not all – hazards expanding overseas vis a vis regulatory minefield.

    It is the “local culture”.

    Imagine for eg, a bank lends equivalent of RM70 against mortgage over land colateral of market price RM100, which under forced sale where property devalues to RM70, the bank can s till recover RM70 for principal at least.

    In Indonesia, the valuer may “bump” up a property worth actually RM50 to RM100 against lending of RM70.

    In bad times like now, the property falls say 30% of its actual value of RM50 to RM35 against lending of RM100. The Bank will lose RM75 under force sale!

    Multiply this RM75 per under-collaterised loan by the number of loans one has in banking crisis and you have a collossal figure.

    This kind of banking crisis as Japan’s experience shows can fester over a decade.

    Maybank can acquire its stock in BII at 4.3 times price-to-book value, by 1 or 2 years time, its share value may fall to half or more of the value at time of acquisition.

    Some more, one has to factor in the huge corporate loans borrowed by local Taikos who bribe court and police officials : how to sue them to recover?

    Indonesian banks can do local banking but repute not that great in bigger scheme of things. Even some of their LCs are not in aceptable by others outside.

    And in this kind of climate if BII were short of funds and needs to be bridged by inter bank borrowing from the Interbank market, will the other banks lend to it and even if they do it must be at very high costs!

    What about Maybank’s own back yard in the coming hard months where effects of Global financial crisis hit our shores with full force?

  11. #11 by veddy.lum74 on Wednesday, 22 October 2008 - 8:52 am

    this is not the first time they show their greedyness,and not the last time too!
    remember the ‘brilliant’ govt. bought MAS shares for @rm8.00 outside market whereas the inside market was offering @rm3.20?and that was to make Tajudin the immediate tycoon of the country!
    Proton buying over the Lotus at extremely high price,and subsequently,bought mv augusta and later sold it for euro1.00?????

  12. #12 by Jeffrey on Wednesday, 22 October 2008 - 8:53 am

    Actually the Bank in recovery may lose more than RM75 in the above simplified hypothetical case. The loan may be inflated to bribe intermediaries who arrange the loan, then the bank officials’ cut and so on! Then the credit integrity of the borowers where such things happen, they may not be able to repay in normal times, what more in a financial crisis like now.

  13. #13 by Godfather on Wednesday, 22 October 2008 - 9:18 am

    “What about Maybank’s own back yard in the coming hard months where effects of Global financial crisis hit our shores with full force?” Jeffrey

    What financial crisis ? Oh, you mean the US and European financial crises. It won’t affect us, because our economy is strong and we are insulated. Our fundamentals are strong. We won’t run out of money, because we have the EPF, and even if the EPF runs out of money, we can still print some more. So where’s the problem ?

  14. #14 by Godfather on Wednesday, 22 October 2008 - 9:21 am

    “Maybank can acquire its stock in BII at 4.3 times price-to-book value, by 1 or 2 years time, its share value may fall to half or more of the value at time of acquisition.” Jeffrey

    No worries, Jeffrey, if BII’s share price falls, we will get EPF to provide another loan to Valuecap and have the latter support the BII’s share price on the Jakarta Stock Exchange. We have our contingency plans, so don’t panic.

  15. #15 by Bigjoe on Wednesday, 22 October 2008 - 9:21 am

    I have been worked in bank and financial institution acquisition for more than a 15 years. I worked for one of the most successful people in this area with track record in terms of century not just decades.

    This kinds of acqusition is never worth it. Buy at a peak and at a premium. At best, you pay for it by dragging the shares for years, giving up future opportunities. At its worst, you end up being gobbled up someone else when troubles loom. For many years Maybank was the no. 1 bank share for foreign investors, today its clear its not even in the top 3.

    My prediction is that Maybank will be merged with a smaller bank. If I were a smaller local bumi bank today like say AMMB, I would really work hard improve operations and management with a diversity of business. At some point, the govt will have to consider merging Maybank with one of them i.e., a reverse takeover…

  16. #16 by Godfather on Wednesday, 22 October 2008 - 9:31 am


    Najis’ brother already has his sights on Maybank. That is another contingency plan which our so called Treasury has for Maybank. It will be called a merger, but in reality it will be a takeover by the smaller cousin.

  17. #17 by HJ Angus on Wednesday, 22 October 2008 - 10:01 am

    And don’t forget BNM also play the role of governance like a biased referee. They did not allow Southern Bank to look for other suitors but were forced into the CIMB group like a shot-gun marriage.
    The problem was they were not the cause of the unwanted pregnancy!
    At least the Indonesian authorities allow their banks to try and get the best deals – they looked after the minority shareholders unlike Malaysia where the SC can waive MGOs and hence deprive the minority of a better bargain.

  18. #18 by kanasai on Wednesday, 22 October 2008 - 10:14 am

    Maybank stupid acquisition may result in systemic risk in Malaysia banking system and increase of the cost of borrowing. This will then will lead to increasing NPL/s. In addition, we’ve no much bullet left by lowering the interest to since our BLR are already very low at about only 3.50%. Unlike India which recently lower their rate by 1% to 8.0%, they still have many ammunitions left if economic situation to deteriorate. Can we still cancel the acquisition and just let the millions deposits forfeited?

  19. #19 by bclee on Wednesday, 22 October 2008 - 10:27 am

    i think if force acquisition will make more derimental to the overall bank porfolio better just scrap it now. loss small better than big later on.

  20. #20 by kanasai on Wednesday, 22 October 2008 - 10:37 am

    Malaysia’s high liquidity can be better utilised for a cheap lending to SME during this difficult times to create more employments opportunities. Malaysia SME current contribution to the GDP is still very low compared to Japan with almost 40%.

  21. #21 by Godfather on Wednesday, 22 October 2008 - 1:10 pm

    Another look at the Maybank “scandal”, this type from the eyes of our Malay brethren:


  22. #22 by Jeffrey on Wednesday, 22 October 2008 - 3:26 pm

    Big Joe says, “this kind of acqusition is never worth it”. He is right. However the Maybank fellas never get it. Long term investment blah blah all excuses, at the end of day they’re looking for bailout, EPF or Petronas when Maybank’s share capital “kena” hit.

    In the best of times Maybank should know due diligence of its accountants and auditors could not give detailed and comprehensive coverage of BII’s portfolio to give prognosis of Non Performing Loans (NPL). [NPL ratio is function of bad/distressed loans divided by total portfolio]. You think the Vendors of shares will open everything for scrutiny???

    You could only gauge the position when you go into BII (after you paid money) but not before. Only then you could perform the stress test and that also depends on level of skill of Maybank’s people doing it whether get all information and interpret all relevant information relating to impact factors on NPLs like for examples:-

    · Level of inflation in Indonesia;

    · Its GDP growth;

    · The Forex equation – Rupiah vs US$ the demom,inator of acqusition;

    · Indonesia’s domestic interest regime/cvost of funding;

    · Sectorial performance of different sectors of economy consituted of BII’s portfolio;

    · Portfolio analysis, sector by sector and their market share within Indonesia’s banking industry.

    Some more within BII, Maybank will have contend with the culture Temaek set; outside BII in the open market it has to contend with the corrupt culture. Good luck to Maybank.

    Have Maybank advisers analysed these before entry and confirming 4.3 times price-to-book value, happy with 15% discount ???

    In this Global Financial crisis, the total portfolio would deteriorate which means the NPLs are likely to suddenly proliferate and mushgroom.

    Temasek is laughing all the way…..

  23. #23 by Jeffrey on Wednesday, 22 October 2008 - 3:30 pm

    Godfather says that “Najis’ brother already has his sights on Maybank” meaning if Maybank gets hit CIMB bails out but the question is who bails out CIMB after it bails out Maybank? :)

  24. #24 by HJ Angus on Wednesday, 22 October 2008 - 3:46 pm

    But it is REALLY worth it for those involved in the deal.
    It is worth it for Temasek – they made a good profit even though their selling position was considered weak.
    It is worth it for those who bought BII shares before the deal was agreed – insiders?
    It is worth it for the deal makers and fat commissions – easy work as Maybank was drooling at their catch.

    But it is not worth it for EPF etc who will be the final bail-out guarantor.

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