STREET WISE
Odd goings-on surround TMB
When the government unveiled the plan to merge Thai Military Bank, DBS Thai Danu Bank and the Industrial Finance Corporation of Thailand, people in the financial market thought the merged entity would be bigger and stronger and, as such, it would depend less on further state assistance.
It's not so. The Finance Ministry is spending Bt3 billion on TMB Bank's new capital-increase shares. In the case of any company, shareholders will grab the opportunity to buy new shares if they see the company making profits in the future. So it's assumed that the ministry, as a shareholder, expects to reap huge dividends in return for the additional investment. However, TMB Bank's track record casts doubt on that. Although it's the fifth largest bank in terms of assets, TMB Bank has performed less impressively than many other banks, including Bank of Ayudhya - a smaller institution that is now being pursued by GE Capital. There is still talk that TMB Bank's internal operations are not yet running smoothly, as the three merged entities were of different origin. In a way, different cultures could be a stumbling block to greater cooperation among employees. The way the investment was approved is also peculiar. Caretaker Deputy Finance Minister Chaiyot Sasomsub explained that the Cabinet had to approve the deal because it was an extra investment that had not been included in the national budget. In other words, this investment was not on the government's agenda. To some bankers, the deal is strange. If TMB is as prosperous as claimed, the ministry could forgo the right issues to any other shareholders or investors, who would surely want to snap them up. This should have been the case, since the ministry had no cash in hand for this purpose. Moreover, the deal involves the Government Savings Bank, the specialised financial institution which has been a major financing tool for projects initiated by the Thaksin government. To finance the investment, the ministry has to sell a stake in MCOT Plc to GSB with a three-year buyback guarantee. In a way, the ministry is borrowing money from the bank and offering the MCOT shares as collateral. In doing so, the ministry is subject to an interest cost - 1.66 percentage points above the 12-month deposit rate of 4.75 per cent to 5 per cent. The cost is then between 6.41 per cent and 6.66 per cent. If it lent the same amount of money to other borrowers, the GSB could charge the minimum lending rate of 7.5 per cent, or higher. Remarkably, it was reported earlier that a key politician's family held a stake in the bank. Caretaker Finance Minister Thanong Bidaya was also the bank's former president, when it was the Thai Military Bank. Doesn't it sound all too coincidental?
achara_d@nationgroup.com
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