Asking the right questions on BOV

So, Times of Malta published an interview with Bank of Valletta’s Chairman and CEO. I usually follow Mark Laurence’s interviews with interest, however, the interview with BOV lacked serious and important questions.

Bank of Valletta has been extracting shareholder value in order to help it survive and questions should have been made on this issue. More importantly, questions should have been made on the overall health of the bank. The bank has recently issued €350 million in debt to expand its reserves and there is nothing unusual in this. The ECB has increased capital reserve requirements for banks this year as part of its monetary tightening. Other banks are also collecting additional reserves and APS did that as well by taking the bank public. The interesting thing is that BOV’s notes have a staggering interest rate of 10%. For an ordinary fund manager, it’s probably a very good bet and in fact, the notes were oversubscribed. Why wouldn’t you take 10% pa from Malta’s biggest and most important strategic bank which the government has a large stake in? So, the question which should have been asked would have been:

Don’t you think it’s a bit fucked up that you couldn’t raise capital by selling stock since you already heavily diluted your float and instead you were forced to issue debt on which you are going to pay a whopping 10% yearly on?

I suppose the answer would have been yes. Seems like shareholders would have to wait a bit longer to get some of those dearly missed dividends. BOV is like an incinerator of capital.

3 Trackbacks / Pingbacks

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