Family-driven Mergers Stir up Concerns

Profitability is not the hottest point of discussion during this shareholder meeting season. Bankers and bank CEOs almost accept lower profitability this year and some years ahead to wait for a better outlook later. But, the mergers are of great attention. Shareholders are concerned about M&A partners, M&A methods and State divestments in some commercial banks.

 

On April 16, Southern Bank assembled for the 2014 Annual General Meeting of Shareholders. The information of particular interest, also received almost absolute votes of ayes, was its merger with Sacombank. Earlier, shareholders of Sacombank also agreed on the merger with Southern Bank in its Annual General Meeting despite some strong objections. Opposing shareholders were anxious about Southern Bank’s high bad debt ratio. In addition, the bank's asset quality was worrying when receivables, interests and fees receivable of big values are short on balance sheets.

 

The unease increased because both banks are involved by Mr Tram Be as his family held as their majority shareholders. The merger was certainly easy because this was like a family affair.

 

One day earlier, on April 15, Mekong Development Bank (MDB), said it would consider merging with another bank in a report approved by its board of directors. Although it did not mention the target bank, Maritime Bank was believed to be its partner.

 

At its annual shareholder meeting on April 19, Maritime Bank said it would merge with a credit institution. Currently, Maritime Bank is a major shareholder of MDBank, with 10.16 percent of stake, and the two banks also had some same major shareholders. Like Southern Bank case, after the merger, the cross ownership in Maritime Bank will be ended.

 

According to its financial report, in 2013, MDB’s total assets reached VND6,437 billion, down 25 percent from a year earlier. Deposit mobilisation increased 16 percent; outstanding loans rose 5 percent; nonperforming loan (NPL) ratio was capped at 2.65 percent; and pre-tax profit was VND110 billion. The lender had 1,082 employees at the end of 2013, down 40 percent from the previous year. Maritime Bank reported better results, with pre-tax profit grossing VND411.235 billion and profit after tax reaching VND339.871 billion in the year. As of the end of 2013, the bank's total assets reached VND102,802.462 billion; its owner’s equity was VND9,404.923 billion, and the share capital was VND 8 trillion.

 

In addition to the M&A information, the model and method of M&A and restructuring were also hotly discussed. The public paid a special attention to the annual shareholder meeting of PGBank on April 18 where its merger with Vietinbank was voted. The former will become an affiliate of Vietinbank - a model unprecedented in the banking industry in Vietnam to date.

 

Vietinbank and PGBank will swap shares and Vietinbank will hold some 99 percent of PGBank stake. The proposed swap ratio is 1:0.82 (01 PGBank share is converted into 0.82 Vietinbank shares). This hot information was posted on the PGBank website but was then removed, with uncertain opinions about this hot information by its executive officials. Merger with Vietinbank is just one of many options we take into account. We will meet and discuss with selected partners and make a conclusion when we reach the deal,” a leader of the bank said.

 

Cross-ownership is not the cause for the swap deal notified by PGBank and Vietinbank but it related to Petrolimex Corporation’s divestment in PGBank. Petrolimex holds 40 percent of PGBank’s stake. Under the direction of the Prime Minister, Petrolimex has to reduce its stake in PGBank to 20 percent by 2015. The merger will immediately result in to the decrease in holding ratio of Petrolimex in PGBank without making a public divestment.

 

The ‘bank in bank’ model PGBank and Vietinbank target at is also controversial. This case is unprecedented in Vietnam but the world also saw similar cases when the buyer wants to keep the brand name of the acquired lender. Nevertheless, the brand of PGBank is not convincing enough for Vietinbank to keep. Besides, although Petrolimex can delay its divestment with the merger deal, it still has to end noncore investments in the end, according to the instruction by the Prime Minister.

 

In another remarkable development, the Board of Directors of Saigon Hanoi Bank (SHB) asked its shareholders a favour to take part in the restructuring of a financial company. The Board said to the Annual General Meeting of Shareholders on April 19 that the bank wanted to advance into consumer financial service after it admitted a financial company. According to the board, this service segment will develop strongly in the future. Also at the meeting, SHB also sought the vote for raising the share capital from VND8,865.8 billion to VND11,082 billion in 2014. The lender also targeted to bring the bad debt ratio to below 3 percent at the end of 2014 after pulling from 9 percent, as a result of merger with Habubank, to 4 percent in 2013.