Comment:
Let’s give Maybank a chance to prove itself

FOR a bank that has stayed prudent for so many years, Malayan Banking Bhd's sudden acquired taste for aggressive transactions may not go down well with investors.

The top lender, long criticised as being slow to expand abroad, has made three major purchases in just two months.

The breakneck speed at which it committed RM11.5 billion for the three banks in Vietnam, Indonesia and Pakistan in a series of almost back-to-back announcements is dizzying. More so at a time when most economies in the world are staring a slowdown in the face.

"Yes, they need to expand. But at what cost and at what stage of the economic cycle? It's not like they are scooping up bargains at the bottom of a deep recession where asset values will shoot up as growth recover. Shares in general have rallied quite a bit already," said a fund manager.

Most of the Maybank deals are not cheap.

The lender's shares have slid 11 per cent since late March, when it said it would control Bank Internasional Indonesia (BII) in the most expensive banking transaction ever in that country.

The stock may be punished further when trading in Maybank shares resumes this morning after a third purchase was announced yesterday.

Although Pakistan's MCB Bank is of higher quality than BII, sceptics said the deal still looks pricey since Maybank is only buying a maximum of 20 per cent share and it has no management control in the lender.

However, OSK Research banking analyst Chan Ken Yew argued that the high price is justified considering MCB Bank's high return on equity (ROE) of 38 per cent.

"If Public Bank with 25 per cent ROE can trade at four times book value, then why is MCB Bank expensive at 5.1 times book?" he asked. But Chan was quick to add that the price may seem fair only from the pure financial standpoints. Country risk in Pakistan is obviously much higher than in Malaysia, he noted.

Maybank could have succumbed to peer pressure to expand abroad so urgently, as close rivals like Bumiputra-Commerce Holdings Bhd and Public Bank Bhd had already made moves successfully.

Maybank may also have been desperate to meet its own performance target as the 12 to 24 months deadline it had set for itself to find suitable overseas purchase drew closer.

But Maybank needs to be careful.

A fund manager pointed to the experience of HSBC Bank, which had made good calls for over a century by scooping up bargains during times of crisis.

"And then they decided that the US market was a 'must have' if HSBC were to grow, so they bought Household International in the US at a time when the housing market was booming," he said.

The global banking giant later paid a high price when the subprime crisis hit, making huge write-downs from the investment.

The HSBC example is definitely a drastic one, and with a small Malaysian market, Maybank has no choice but to expand overseas.

Even BCHB shares were punished when the group bought Bank Niaga in Indonesia, but the decision to expand was proven right a few years later. Thus, it is only fair that Maybank be given the chance to prove itself in executing the acquisition synergies.

Maybank may not be a good bargain hunter, but let's hope it will do better in execution to extract value that will justify the high prices.