Malta can make big money from the ABN Amro auction which is well on its way. HSBC and Barclays are both big players and there is plenty of Maltese money in both banks.
Our country has had - and still has - tens of millions, if not hundreds of millions, administered by Barclays. Malta has no reason, up to now, to regret its choice, but such decisions must be under constant review. Prior to independence, and even several years afterwards, Barclays was the holder of this country's government's account.
The vacuum left by the erosion of Barclays' financial power in Malta became apparent when Malta's banking laws were passed in 1970. These gave this country's Central Bank a new and untested responsibility. The Central Bank had been created just over a couple of years earlier. It had not grown organically, like the Bank of England, but it had burst on the local financial scene very much like Athena, the Greek goddess of wisdom sprang from the head of Zeus with a mighty war shout and in complete armour.
Malta was, at that time, in the first stages of becoming a most successful microstate. Some friction was inevitable. Since the departure of Barclays and the 1973 National Bank Malta debacle, no Maltese national has had the credentials to come before this country's politicians with the dignity and standing of a banker entrepreneur and not that of a mere bank employee.
Barclays Bank's policy in Malta in the Sixties was by no means to monopolise the Malta banking playground. It encouraged the massive expansion of the National Bank of Malta by refusing an offer from that bank to take it over.
The National Bank of Malta bore the brunt of the transformation of our economy after independence. This transformation created the relatively rich Malta of today, the Malta which is absorbing migrants instead of actively encouraging its people to emigrate.
This rather long introduction to the rapidly evolving Barclays ABN Amro takeover saga has been made necessary because it is very difficult for our young to realise the economic significance of Barclays' great name to their country has been in the past and only to a smaller extent in the present.
Significance
Malta has not yet woken up to the fact that it can have massive traded returns from its financial resources in both the government and private sectors of the economy. Clear proof of this is that there is yet among us no financial night trading and very little financial education among the general public. It is only by studying the share movements in the present struggle of the European banking behemoths that a share trading culture can be developed and substantial money earned by the Maltese people. Mere academic knowledge of the subject can become counter-productive, unless it is translated immediately into material gain.
The only people who can ever master the profession of moneymen are those who are either owners or trustees of the money to be traded.
Our Stock Exchange
'No man is an island' John Donne wrote. We say that no stock exchange can solve its problems without reference to a globalised world. There has been for some time a noticeably losing streak in this country's formerly successful stock exchange.
The MSE is certainly not - for the time being - reflecting the robust state of our economy. Its progress is demonstrated unequivocally by the increase in the return of equity (ROE) of its banks, and the massive increase in the deposits registered in the past months by a small bank like APS.
Banks are the infallible touchstone of a nation's economy. According to Forbes classification it is banks which show the highest profits in any country. In Malta it is indisputably HSBC, presently under dynamic management, which is exercising leadership in our stock exchange. Its losing streak is obviously a reflection of the losing streak of the share of the globalised HSBC bank.
This cannot but pull down the share price of its Malta satellite organisation. The losing streak of the globalised HSBC bank is worrying nobody with a sound knowledge of international banking. It is an excellent buying opportunity according to the Italian financial paper 24 Ore, and for an analyst such as Woodford and Murphy, HSBC reported $22.1 billion pre-tax profit last month, and its share price losing streak is to be attributed to its acquisition ambitions which are certainly of gargantuan proportions.
These include, according to The Daily Telegraph, the very Barclays Bank which is the subject of this article. So there is no understanding movements in our stock exchange without a diamond hard knowledge of a world economy which is rapidly becoming globalised.
In the Barclays ABN Amro game, HSBC is the biggest player of all. It can afford to pay the highest price for Barclays shares (see table below).
ABN AMRO: POSSIBLE VALUATIONS |
||
|
Assumed |
Max Price |
HSBC |
3.5 |
48.0 |
Santander |
2.1 |
41.0 |
BBVA |
1.7 |
38.0 |
RBS |
3.4 |
37.0 |
BNP Paribas |
3.4 |
36.0 |
Barclays |
3.0 |
35.0 |
Unicredit |
2.4 |
31.5 |
ING |
3.2 |
31.3 |
Latest developments
There have been dissentient voices among some analysts and banks. These have stated that the probable coming of the Barclays ABN Amro tie-up will not be adding value to the British banking scene. This is arrant nonsense. The new globalised banking game does not belong to minnows. Midget banks stand no chance whatsoever to operate on a world scale.
British banks must look for international profits if they are to survive. European Union banks must attain a certain critical mass. The American banking challenge has secured added power from the unexpected explosion of the Industrial and Commercial Bank of China (ICBC). Unless HSBC takes over a great bank like Barclays, it will soon find it very difficult to compete with an ICBC backed by the like of Goldman Sacks.
ICBC has become the second bank in the world and has expanded its share price by 80 per cent over the last six months. HSBC has been pushed to fourth place. It has confounded the majority of analysts, as nobody guessed the power of New York money behind it.
There is no stopping the economic advance of China. Mao Tse-tung had frequently stated that it could take easily, with its 1.2 billion population, the ravages of a nuclear war.
The only way the EU can survive as an economic power is by implementing the long-awaited, pan-European restructuring of all sectors of the economy. This has to begin and is already beginning with its banking.
HSBC features large in this game, though it is receiving much bad press by some analysts. These cannot understand that with the chance of Barclays taking over ABN Amro only at 50 per cent, an eventual failure on the part of Barclays to do so could make it an easier prey for such a bank as HSBC.
The Santander-Royal Bank of Scotland alliance has been reported in the quality press as ready to swoop on ABN. This was while the day before it had been reported that Barclays would in the next couple of days be presenting its price for ABN.
It has already stated it would not be prepared to buy it at any price. HSBC has the power if it cares to use it, to outbid Barclays.
The auction game
It is probable that the world's most interesting bank auction game is unfolding.
This is massively complicated by the fact that the man at the helm of Barclays is Marcus Agius, the former Lazard banker married into the famous Rothschild banking family. It has been reported by Bloomberg that Barclays hardly was using external investment bank advice in its takeover strategy.
This is to be expected with Agius in the top Barclays position, though his name is not appearing in the press at all. He has a top Mergers and Acquisition (M&A) track record. HSBC might be one of the world's top banks but it might easily lose its great position if it does care to use its great strength in this dramatic contest.
Santander-RBS are smaller players in the game. Maltese investors should note that they can learn a lot about the local HSBC share price if they follow the described game than if they study its annual report.
There is evident proof that HSBC is at a great turning point in its history. Its share price is at present massively unvalued.
It might be a unique buying opportunity like that when China took over Hong Kong, and many thought that the great days of HSBC were over.
The contrarian view
We must give due notice in this article to the contrarian view which states that Barclays ABN Amro merger could prove to the unmanageable and produce poor results.
The mastodontic Citigroup and HSBC banks have both rewarded recently poor returns to their shareholders. HSBC is widely regarded, and with reason, as one of the world's best run banks. It operates in more than 80 countries.
It would however be silly to say that it and its likes were caught by surprise by the sudden decline in the US subprime mortgage market. Subprime lending by banks refers to loans to clients who under normal circumstances would not qualify for a bank loan.
May I ask whether subprime lending is a type of lending, in which no commercial banker in his proper senses would indulge in unless he is under undesirable political pressure?
The world has yet to know what were and what weight had the pressures on American bankers which induced them to lend $100 billion to clients who obviously had no means of ever paying back. HSBC lost $12 billion in this unhappy story.
Thank God for the globalised financial power of HSBC, and the other US banks. In other circumstances they would have crashed and pulled the world economy down with them. This happened in 1929 and brought about a world depression which lasted up to World War II, and had the election of Hitler to power as one of its results.
May the ABN Amro auction continue to grow and prosper. Bank games are to be preferred to war games, at least they make brokers and investors rich.
This is not investment advice but cultural background for the building up of an investment decision. John Azzopardi Vella has promoted the Malta Development Fund and advised S&P as presently he is an executive manager with DBR Investments Limited licensed by the MFSA. johnazzopardivella@hotmail.com