Batten down the hatches

The days are long, but the years are short. The days are very long when we are living through the eye of the storm, which best describes the traumatic financial times we are living through at the moment - bail out or no bail out. While some people I spoke with in the US are far from seeing a light at the end of the tunnel, Alan Greenspan opined on Thursday that this crisis will be over "sooner, rather than later".

Why do I see hedge funds as being a common thread in the development of this disaster? Ten years ago this month, we saw the collapse of a hedge fund, Long-Term Capital Management, set up by two Nobel Laureates in Economics.

In July last year, another two hedge funds hit the headlines when they floundered. They were owned by the (then) iconic investment bank Bear Stearns, which had cleverly christened them High-Grade Structured Credit Fund and The High-Grade Structured Credit Enhanced Leverage Fund. According to Mohammed El-Erian's recent book When markets collide, that event in the summer of 2007 marks the beginning of the disaster sparked by souring sub-prime mortgages, offered to poorer home buyers with unsound credit ratings. As predictable mortgage delinquencies and defaults rose, the ensuing credit crunch left several lenders bankrupt.

Exactly a month ago, the world's biggest commodities hedge fund, Ospraie Management LLC, pulled down its shutters. It so happens that Lehman Brothers had taken a 20% stake in the company in April 2005. Last month, Lehman's was in negotiations with state-owned Korea Development Bank, hoping the latter would inject $5 billion of fresh capital. A week after Ospraie's failure, the Korean proposal was withdrawn. Four days later, Lehman Brothers filed for bankruptcy under Chapter 11.

It is reprehensible that regulators did not step in, in time to stop the biggest names in world banking from repackaging, branding and distributing useless mortgage-backed securities into an alphabet soup of investment products - often unintelligible even to some of the banks selling them.

Notwithstanding the undoubted eagle eye of the Maltese regulator vis-a-vis Malta's banks, as foreign markets were pounded and pummeled, the Malta Stock Exchange was not immune to the tidal wave of adversity facing the financial world. The banking stocks again bore the brunt of the negative sentiment, down a heavy 8%. To be precise, Bank of Valletta plc (BOV) was down 8.3% to €3.95, while HSBC Bank Malta plc (HSB) closed exactly 8% lower at €3. With the two banks accounting for a staggering 77% of the week's total equity turnover of €500,465, it comes as no surprise that little else took place on the market. Of the 19 listed securities, only 10 traded this week. The MSE index touched a new 2008 low of 3,633.666 on Thursday, but advanced slightly to 3,649.039 on Friday. Week on week, this was still a dismal 4.96% down.

BOV started the week on a bleak note, opening 4c lower at €4.27 and sliding to €4.20 by the close. It went into freefall on Tuesday, stumbling to a low of €3.912 before some calm was restored as the equity climbed back to a €4 close. However, it was down to €3.90 on Thursday and spent most of Friday at this level, with the last deal struck at €3.95 for BoV to close the week a most unwelcome 8.3% lower. Turnover for the week totaled 48,456 shares for a value of €194,343. At the end of the session, the best bid was for 265 shares at €3.90 and supply of 1,000 shares started at €3.95.

HSB did not trade on Monday, but slumped on Tuesday, opening 6c down at €3.20, sliding as low as €3.031 and recovering to €3.11 in the final deal. However, it retreated to €3 on Wednesday and traded consistently at this level till the end of the week, to close down an equally unpalatable 8% on a total turnover of 63,051 shares for a value of €191,109. At the end of the week, the best bid was for 335 shares at €2.99, with supply of 1,200 shares at €3.04.

HSBC Life Assurance (Malta) Ltd last Monday increased its issued share capital by €4,999,999.33 divided into 4,293,002 shares. The share capital was increased by an injection of capital in cash by the parent company HSB in line with its policy to support further growth in the life assurance business.

International Hotel Investments plc traded late in the week. On Thursday, it gave up 3.85% to €1 over two deals for 10,000 shares each, with Friday's four trades all executed at €1. Turnover totalled 26,564 shares for an identical value.

GO plc (GO) was steady at €2.20 on a number of small trades on Monday, firmly maintaining this price throughout the week to close unchanged. Turnover totalled just over 18,000 shares for a value of €40,102. At the end of the session, the price was supported by a bid for 5,238 shares while supply for 750 shares started at €2.295.

On Monday, Go announced the resignation of chief commercial officer Keith Fearne, effective the previous Friday. On Friday, Go announced it has filed an application for retrial proceedings in relation to the July 7 Court of Appeal judgment relative to the pension claims of former Cable and Wireless employees, together with an application to stay the execution of the judgment.

Fimbank plc (FIM) had a quiet week, trading only on Monday and Thursday. While Monday's 6,500 shares were effected at a stable price of $1.896, Thursday's two deals pulled the price back to $1.84 for Fimbank to lose 3.1% on the week. Volume was soft with just 9,170 shares traded for the week.

On Tuesday, the company announced that following the scrip issue, the shareholders holding 5% or more of its issued share capital are: Massaleh Investments K.S.C.C. - 44.27%; Astrolabe General Trading Contracting Co - 5.8%; International Finance Corporation - 5.84%; Mr Fouad M.T. Alghanim - 5.02%.

On Friday, Fimbank announced that pursuant to the scrip issue, a total of 1,089,599 shares were admitted to listing on the MSE on September 26. The total issued and fully paid up capital of the company as at September 30 amounted to 134,810,312 shares of US$0.50 each. Mohammed I.H. Marafie has notified the company that his holding has fallen below the threshold of 5% to 4.4434%.

Lombard Bank plc (LOM) gave up 4.9 cents to fall to €3 in a small trade for a mere 80 shares on Tuesday. A more respectable 6,720 shares changed hands at the same level on Friday for LOM to close 1.6% down.

Simonds Farsons Cisk plc (SFC) only traded once on Monday, down 1.2% to €2.60 on a single deal for 3,117 shares. On Tuesday, SFC released its interim results for the six months to July 31. Profits before tax fell 54% from €3.312 million to €1.52 million. Earnings per share fell from €0.112 to €0.038. The decrease in profits was attributed to liberalised market conditions, the abuse thereof, and the initial efficiency set-up problems encountered with the newly commissioned production lines. SFC is in the course of implementing a permanent cost reduction programme, which includes reduction in overhead costs and a head count reduction of 60 persons within the next 12 months. The board resolved to distribute, out of tax exempt profits, an interim dividend of €0.0078 per share. This dividend will be paid on October 24 to shareholders on the register as at the close of business on Friday, i.e. buyers by next Tuesday. On Friday, SFC announced that Marina Hogg was appointed director with effect from last Wednesday replacing Alberto Miceli Farrugia.

Crimsonwing plc was unchanged at €0.50; turnover consisted of 8,500 shares in just two deals, for a market value of €4,250. CW announced that at the AGM all resolutions were approved. It also approved the special business item in relation to the enterprise management incentive scheme whereby certain members of the executive team may be granted options to purchase and acquire shares. The board of directors was reappointed in full.

Grand Harbour Marina plc was one of only two equities to end the week in positive territory. It advanced 5c to €2.20 on a 1,500-share deal on Tuesday.

Maltapost plc (MTP) was the other positive performer; the week's activity consisted of two deals for 233 shares each, one at €0.83 and the other at €0.84. Notwithstanding, the poor turnover still gave MTP the week's best performer's spot, up 2.9%.

In the Government Bond market, turnover by value amounted to €8.8 million with 61 deals struck in 20 stocks. In the corporate bond market, there were 26 deals for a total turnover value of €178,192. Turnover value in the Treasury Bill market totalled €5.9 million.

This report was provided by J.G.P. Bonello, managing director of Financial Planning Services Limited, of Marina Court, G. Cali Street, Ta' Xbiex, which is licensed by the MFSA to provide investment services, including stockbroking (IS/3608). The company is involved in acting as sponsoring stockbroker and corporate stockbroker. The directors or related parties, including the company and their clients, are likely to have an interest in securities mentioned. E-mail: info@bonellofinancial.com or 2134 4243.