Poetic Justice

 7^th September 2007
The Malta Independent - Friday Wisdom

There is some sort of poetic justice surrounding the bid that HSBC parent bank is making to buy a 51 per cent controlling interest in Korea Exchange Bank (KEB).

KEB is Korea’s sixth largest bank. A US private equity fund called Lone Star bought this majority stake in 2003 at what is claimed to be an artificially low price. There was an investigation by the state Board of Audit and Inspection that cleared Lone Star of any wrongdoing but former KEB and government officials involved in the original sale remain under investigation. Korea’s financial regulator seems however unwilling to approve a sale that would generate a huge profit realisation for Lone Star before all court cases are concluded, a process which could take a further three years.

Lone Star has now agreed to sell such 51 per cent in KEB to HSBC but as this is conditional on the approval by the Korean Regulator, it is unclear whether this deal can go through any time soon.

In 1999 HSBC acquired Malta’s Mid-Med Bank at an unquestionably cheap price. Mid-Med Bank was Malta’s largest bank. Can you see the difference of approach between Korea and Malta?

While the Koreans are not being rushed to authorise HSBC’s acquisition of 51 per cent in their sixth largest bank, even though HSBC themselves have nothing to do with the alleged irregularities in the original acquisition of Lone Star’s holding in KEB; the government here still thinks that the sale of 70 per cent in Malta’s largest bank to HSBC at half its real price was a good deal for Maltese taxpayers. No investigations, no audits – just use of the executive parliamentary majority to block further deliberations.

So it must be poetic justice that HSBC are being stalled in their quest for significant entry in the growing Korean market by the very same reason with which they themselves found quick and easy entry into the Maltese market giving them one of the most profitable investments any bank has ever made.

But there are more lessons to be learned from HSBC Korean adventure. In an effort to play to local sensitivities and smoothen the regulatory approval for their KEB acquisition, the Financial Times reported that HSBC are expected to retain KEB public listing and brand name. Let me grant that once HSBC acquired Mid-Med Bank it was sensible to integrate the brand within their international one. But certainly in Malta’s case there was total disregard to local sensibilities when HSBC dropped the name of poet Ruzar Briffa after whom the Operations Centre at Qormi was named.

It is never too late to show deference to local sensitivities by restoring homage to poet Ruzar Briffa especially now that the bank should find it helpful to distinguish the Business Banking Centre from the Operations Centre. Perhaps in further deference to local sensitivities they could consider naming the Business Banking Centre after Gino Muscat Azzopardi, another Maltese poet and historian who hailed from the area where the centre is located.

And if they can take a leaf from their Korean book, HSBC should take further steps to respect local sensitivities by donating in full title the famous Turner water colour painting of the Grand Harbour to the National Museum of Fine Arts. This work of art was bought by Mid-Med Bank in 1998 prior to sale to HSBC and it is more than fair that after making such a great sacrifice, especially through the hard work of Dr Philip Farrugia Randon, this work of art should stay in pure Maltese public ownership.

Let’s stretch it further. Why not revert to the government the title of Hexagon House at Blata l-Bajda which originally housed Lohombus Corporation and the land for which was given on concessionary terms by parliamentary resolution to Lohombus on condition that it is used to locate its financing activities for social housing.

Our government in waiting, whoever that may be, will certainly find it useful to integrate this site in the redevelopment of the inner harbour area, a matter that seems high on the agenda of both our main political parties.

If HSBC can give attention to Maltese sensitivities as much as they are giving to Korean sensitivities then as a nation we can get some real justice, not just its poetic version, for the grossly discounted price at which Mid-Med Bank was presented to HSBC on a silver platter in 1999.

May be this would tone down the rising clamour for the Exchequer to consider introducing a windfall tax on banks to get back a fair share from the excessive and growing profits that banks are continuing to register given the pseudo competition on the Maltese banking markets dominated by two large banks with market shares unobtainable in other countries.

I don’t agree with windfall taxes. Windfall taxes should apply to windfall profits and the profits of Maltese banks are anything but windfall. They are recurring with monotonous regularity. If anything one should consider a regular dominant position tax on those institutions that in fact make profits through their dominant position as already defined in EU legislation.

Taxes and poetry don’t mix.