Banking practices and the MFSA

Reference is made to the letter by the MFSA (September 27) in reply to my previous correspondence of September 24 on "strange bank practices".

I have written directly to the MFSA explaining that I have no tangible evidence whatsoever that anybody is intentionally depressing the price of BOV shares.

I also stressed my frustration at the shallow business of local shares at the MSE which, in my opinion, distorts the real value of local companies traded at the Malta Stock Exchange.

This frustration is exasperated by the fact that the MFSA seems to be impotent against the highly-inefficient market of shares at the MSE.

However, I was quite annoyed and disappointed by the MFSA reply. I was annoyed by the comment that MFSA acts on facts and not on "fishy smells" and "raised eyebrows". And, worst, I was disappointed that the tangible issues raised in my original letter were not addressed.

I appreciate the fact that the MFSA is a regulator and is governed by rigid rules and regulations.

However, businesses are not driven by rules and regulation but by decisions, which sometimes raise eyebrows and may even smell fishy.

Worse still, their outcome may sometimes turn sour.

The effect of the Lehman failure on the operations of the BOV is a case in point.

It is a fact that what is considered to be an uncalled for, untimely, negative and, worst of all, a fuzzy statement by the BOV about the impact of the Lehman failure on its operating profits combined with the lifting of the price threshold trade range for one day by the MSE led to a freefall in the price of BOV shares by €0.80.

If one were to attach figures to the decisions taken by both the BOV and the MSE, and based on leaked information but not yet denied, it means that the statement issued by the BOV, which concerned circa a €10 million loss for the bank was followed by a reduction of €106 million in shareholders value.

These are, of course, my computations.

Let me explain how I arrived to the figures I mention.

BOV investments amount to €1964,807,000, according to the balance sheet ending March 31, 2008.

One half per cent of these investments (The Times reported on September 25 that the crash of Lehman cost the bank about 0.5 per cent of its investment portfolio, which report has not been denied) is equal to €9.82 million (rounded to €10 million).

The reduction in shareholders value of €106 million is worked out by multiplying the 133.3 million BOV shares by €0.8, as explained above.

So, a manageable and potential loss of €10 million in BOV operating results was translated into a reduction of €106 million in the bank's market capitalisation.

Another salient point is that all this was brought about by the trade of just 25,000 shares out of a total 133 million shares.

Normal people are bound to raise eyebrows at such results arising out of debatable decisions. The points raised in my original letter and above are factual and go beyond smells and raised eyebrows. As such they should be addressed by the MFSA.

And the MFSA?