In March it was Bear Stearns (1923-2008). This week it was Lehman Brothers (1850-2008) and Merrill Lynch (1914-2008). Who's next?
Just five months ago on April 15, Lehman's CEO Richard Fuld declared: "The worst of the impact on the financial services industry is behind us." Mr Field was the longest serving CEO on Wall Street, but this counted for little as the fourth largest investment bank buckled under its overwhelming subprime exposure. With it went global financial services firm Merrill Lynch, taken over by Bank of America. In a flash, the financial landscape changed forever on Monday.
Across the globe, from Australia to Zimbabwe, stock markets plummeted, registering triple digit losses and falling to the lowest levels in years. The Dow Jones fell 504 points for its worst one-day point drop since September 11. And that was only Monday. AIG, the world's largest insurance company, was looking rickety at best. Yet, possibly because it operates in 130 countries and till Friday was one of the 30 components of the Dow Jones Industrial Average, it was bailed out by an $85 billion two-year bridge loan from the US Federal Reserve. From tomorrow, AIG will no longer be a Dow Jones component and will be replaced by Kraft Foods.
At the Million Dollar Round Table conference in Toronto in June, Todd Buchholz, a former director of economic policy at the White House and an expert on global economic trends, spoke about how the economy has shifted in tremendously unpredictable ways. He explained that the speed of change is so dramatic that the financial world has moved from 'here today, gone tomorrow' to 'here today, gone today'.
This side of the pond, the UK endured its fair share of jitters, and after three consecutive days of severe drops, HBOS, the UK's leading mortgage lender was taken over by Lloyds in a £12 billion deal following UK goverment intervention.
The Maltese market was not detached from the world's turmoil this time. Bank of Valletta's announcement that it held Lehman Brothers non-subordinated bonds impacted its profits and caused the price to fall severely, although it rebounded somewhat by the end of the week. Nonetheless, it fell 10.9% on the week. The negative ripple effect spread to HSBC, which saw a more contained, but still severe, loss of 5.9%. This led the MSE index to suffer one of its worst weeks of the year: on Thursday it crashed to a new 2008 low of 3,732.847, but recovered to 3,795.391 on Friday to end the week 4.9%lower.
Bank of Valletta plc (BOV) started the week only moderately lower, shedding 9c to fall back to €4.60. The release of a company announcement early Tuesday morning indicating the bank's 'modest' loss from a holding of Senior (non-subordinated) Lehman paper, as expected, saw investors trying to dump their shares. On Tuesday, supply for 24,308 shares amassed at the bottom of the day's allowable range, but there were no takers. The situation was similar on Wednesday, although supply diminished slightly. After close of trade, the MSE announced that it would remove all trade ranges for Thursday's session. Over these two days, understandably, investors queried what 'modest' meant in terms of euros and cents. Naturally, one hopes that in this case 'modest' will be the dictionary definition of 'limited or moderate in amount'. The bank remained tight-lipped on the issue saying it could not disclose amounts "as this was against company policy". We should know soon enough. September 30 is the last day of BoV's financial year, the results for which will be made public on October 31.
As expected, on Thursday the price plummeted, opening a jaw-dropping 13% lower at €4, only to plunge further, down to a day's low of €3.75 and settling at a €3.799 close - a 17.4% drop. However, BoV rebounded on Friday, albeit on low turnover of 8,644 shares, rising to the top of the day's allowable trade range of €4.181, closing 10% up. While this went some way to assuaging the week's loss, BoV still lost 10.9% on the week. At the end of the session, the price was supported by comparatively strong demand of 14,944 shares at €4.181 with supply of 4,000 shares at €4.25. On Friday afternoon, the exchange announced that it would be removing the trade range on BoV for Monday's session.
HSBC Bank Malta plc (HSB) hovered around the €3.40 mark, ending Monday at €3.399 on thin volume of 5,400 shares. But HSB still came under pressure on Tuesday, opening 9c lower and slumping to a €3.20 close, a punishing 5.9% down on the day. HSB did not trade on Wednesday despite The Times quoting HSBC as stating "its investments remained steady because they do not have any involvement with Lehman Brothers". HSB was stable for the rest of the week with all deals negotiated at €3.20. In all 59,397 shares changed hands for a market value of €192,959. At the end of trading, bids for 1,000 shares were at €3.15 and offers for 1,440 shares at €3.20. On Monday, HSB announced the issue of €25 million 5.9% Bond 2018, of a nominal value of €100 per bond issued at par, subject to an over-allotment option not exceeding €5 million. Application has been made to the Listing Authority for the admission of the bonds to listing and to the MSE for the bonds to be listed and traded on the official list.
International Hotel Investments plc fell back one cent to €1.05 on Monday, and in line with the downturn, moved lower on Tuesday, to close at €1.01. It was generally stable for the rest of the week, closing Thursday, the last day it was active, at €1.015, a rather unwelcome drop of 4.2% on the week on turnover of 48,327 shares for a value of €49,562.
GO plc (GO) was practically unchanged, closing Monday at €2.31 on 10,900 shares. It was stable on Tuesday and Wednesday, and did not trade for the rest of the week to close a negligible 0.04% up. Turnover totalled 13,500 shares for a value of €31,182. At the end of Friday's session, best bids were for 1,000 at €2.25, while offers for 6,200 shares started at €2.30. On Thursday, Go announced that Forgendo Ltd (the joint venture company between Go and Emirates International Telecommunications (Malta) Ltd) has acquired a further 125,000 shares in Forthnet SA issued share capital, for a total consideration of €269,450.
Fimbank plc only traded on Tuesday, dropping a minimal 0.2% to $1.904. Turnover for the day was a more than respectable 104,100 shares for a value of €140,065.
Lombard Bank plc gained 2.5c advancing to €3.075 on slim turnover of under 1,000 shares on Monday. It spent the rest of the week in a tight range of €3.075-€3.06, closing the week at the latter price, up 0.3% on a total turnover of 6,097 shares. Despite the meagre gain, incredibly this was the week's best performing share.
Middlesea Insurance plc shed 5c to €3 in a single trade for 29,881 shares on Thursday, falling a further 5c at the end of the week to end at a fresh 2008 low of €2.95 - down 3.3%.
Maltapost plc was stable at €0.80c in the early part of the week, dropping a cent on Wednesday. It retained its €0.79 price on Friday, to end the week 1.2% lower. On Monday, MTP announced that it has received notification from Gasan Mamo Insurance Ltd stating that it has disposed of part of its MTP shares. The shareholding position in terms of voting rights fell below the 5% threshold to 4.391% on September 10.
Crimsonwing plc gave up 3.5% on Monday, falling to €0.50 on fairly strong volume on 45,407 shares. It only traded again on Wednesday at the same price on slim turnover.
In Grand Harbour Marina plc, the week's only trade for 3,000 shares on Wednesday, shaved 2.3% off the price, closing at €2.10.
In the Government Bond market, turnover by value amounted to €4.64 million with 55 deals struck in 17 stocks. In the corporate bond market, there were 41 deals for a total turnover value of €304,202. Turnover value in the Treasury Bill market totalled €3.4 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 call 2134 4243.