September 30, 2005
A Thought For The Weekend: Why Bank Acquisitions Fail To Meet Growth Expectations
New FMCG analysis shows that a key reason many bank acquisitions fall short of expectations is that buyers do not uncover organic revenue growth problems at the seller. Consequently, while agreeing to a deal price, the acquirer’s management does not fully appreciate that they are implicitly signing up for a heroic turnaround of an underperforming institution.
More after the jump:
They make the great but frequently-overlooked point that banks for sale are much more likely to be having organic growth problems already, and may be dressing the balance sheet. If as a buyer you are also having trouble growing organically (and why else pay a big premium for another institution?), you have a recipe for an underperforming combination.
If, as a potential buyer, your retail organic revenue growth has been consistently strong and has been underpinned by distinctive customer value, you have higher odds of success in the M&A game. However, even for such banks, it is important to think twice if your target is in a region where it faces particularly strong competition.
Conversely, if your performance and that of the target are sub par, and management has a “must-win-this-deal” mentality, then a plan for how the target will be managed so as to be competitive in the market becomes paramount.
Is a Flattening Yield Curve Massacring Bank CFOs?
The WSJ connects the dots on the recent departure of BofA and FifthThird Bank CFOs, saying that both were pushed out because they failed to anticipate and respond to a flattening yield curve and the ensuing loss of net interest income.
Like all financial-firm executives, finance chiefs of the country's regional banks are grappling with a rise in short-term rates even as long-term rates fall. This convergence of rates -- a bugbear that bankers call a flattening yield curve -- cuts profit margins by raising the banks' borrowing costs while lowering the rates they charge on loans to customers.
Perhaps it was not so much the positioning failure as the failure to accurately warn investors that did them in:
Analysts believe the disconnect between the executives' public remarks and the bottom lines was the real cause of their departure. Some say more departures are possible.
"Bank CFOs are now being pilloried because of their inability to correctly gauge this shift in the financial markets," said Richard X. Bove, an analyst with Punk Ziegel & Co. Messrs. Graf and Oken "did not provide the appropriate signal to shareholders."
Asian bankers are of course unable to take as much structural rate risk due to the lack of long-term yield curves in most local currencies, but we have still seen some earnings disappointments on the NIM and NII fronts this past reporting period.
September 29, 2005
S&P Raises Asian Bank Ratings on Stronger Government Support
S&P has upgraded its Asian banking outlook in general and 18 specific banks in Korea, Malaysia, Thailand, and Taiwan, based on a premise of increased government support during crises.
Ratings of banks in China and Japan were deemed to already incorporate such an expectation, while those in the Philippines, Indonesia, and India, while also incorporating an expectation of support, were not deemed worthy of upgrade due to the weaker financial condition of their sovereigns.
This seems more like a change of methodology than anything else, as nothing cited here is new at all.
In addition, S&P upgraded 7 Chinese banks on stronger financial conditions and foreign partners.
More after the jump, including list of banks upgraded:
The post-consolidation structure of these Asian banking systems, improved regulatory and legal framework, and a demonstrated government policy orientation toward supporting the sector reinforces Standard & Poor's expectations that future extraordinary government support for systematically important banks is likely. The extensive actions taken by the governments of the abovementioned and other Asian countries to support their respective banking sectors over the past decade, most notably during and after the 1997-1998 Asian financial crisis, are demonstrative of government propensity to intervene in the financial sector to prevent bank failures. Standard & Poor's estimates show that the governments in Asia have extended well over US$500 billion in support, direct and indirect, to domestic banks in their jurisdiction during the period. China's government has extended the most in absolute terms, followed by Japan, Indonesia, Korea, Thailand, Malaysia, Taiwan, and India.
Specific banks upgraded:
All to A- from BBB+
-BBL (BBB- to BBB+)
-BAY (BB+ to BBB-)
-KBank (BBB- to BBB)
-KTB (BB+ to BBB-)
-SCB (BBB- to BBB)
-TMB (BBpi to BBBpi)
-Bumi-Commerce (BBB to BBB+)
-RHB Bank (BBB- to BBB)
-Chiao Tung Bank (A- to A)
-Chinatrust (BBB+ to A-)
-First Cml (BBB to BBB+)
-ICBC (A- to A)
-Land Bank (A- to A)
-BOC (BBB- to BBB+)
-CCB (BBB- to BBB+)
-ICBC (BBB- to BBB+)
-ABC (BBpi to BBBpi)
-BoComm (BB+ to BBB-)
-CITIC Group (BB to BB+)
-Guangdong Dev Bank (CCCpi to Bpi)
* Bank of China forms auto finance venture with PSA Peugeot Citroen and domestic automaker to accelerate vehicle loan business.
* Competition for domestic managers in China is heating up - bank staff are particularly coveted.
* BPI and Prudential Bank to merge in Philippines.
* Bank of Asia shareholders approve merger with UOB's other Thai subsidiary Radanasin Bank to form UOB (Thailand).
* Kiaknakin Bank to open Monday as KK Finance upgrades its license. (Original statement on plans)
* StanChart said to be gaining share in Korea after KFB purchase.
* Indian non-bank FinCos slip through regulatory cracks, says Economic Times.
* AIG Private Bank opens in Shanghai, becomes first foreign private bank. (release)
* BofA staff arrive at CCB, the first of 50.
BEA Keeps Its Powder Dry in China, But Won't Get Left Out
BEA says that it has been circling several mainland banks, but without success so far. GM Raymond Yu feels that it's early days in China, and doesn't seem to feel any pressure to be a first mover - in fact quite the opposite:
"There's no need to worry, each foreign bank can only partner with two local players. HSBC is out of the game," he said.
The Standard article notes that BEA would like to buy 19.9% (the maximum) stakes in two city commercial banks: one in the north and one in the south, but so far seems to have lost out in the bidding for Nanjing CCB (likely to BNP) and Minsheng Bank.
More China Bank M&A Action: GE Capital and Shenzhen Development Bank
GE Capital has joined Newbridge by taking a 7% stake in Shenzhen Development Bank, the first such China investment for the global finance company. We suspect that this investment will take the form of approximately $100m in primary shares, which will bolster the bank's capital. As Newbridge already controls close to 18% of SDB, it will also mean the bank is effectively at its 25% foreign ownership limit for now, although we also expect that this could be more flexible for SDB given that Newbridge already has effective management control.
Note that per GE's last presentation on Asia, they actually seem more focused on India and SE Asia in the consumer finance arena, meaning that we might see more deals in those markets soon.
September 28, 2005
Taureaux dans un magasin de porcelaine, redux
Even as Credit Suisse was dropping out as an investor in CCB, arch-rival UBS was concluding a $500m investment in Bank of China, alongside larger investors RBS (with co-consortium investors Merrill Lynch and Li Ka-Shing) and Temasek. UBS is said to have a "strategic arrangement" with BOC in the areas of investment banking and securities, presumably one different from the "exclusive strategic partnership" it has with RBS and general "collaboration" and "cooperation" which comes along with Temasek's also-"strategic" investment.
UBS also today announced plans to purchase 20% of of Beijing Securities for approximately $210 million, investing alongside the IFC.
Meanwhile, having been cut out by Deutsche in its bid for a stake in Huaxia Bank, BNP confirms that it is close to an investment in Nanjing City Commercial Bank, said to be in the $100m range. This investment would give the multi-national (but yet very French) banking group an 18.5% stake in the Chinese institution, which The Banker calls "a relatively well-run commercial lender" with low NPLs.
CS pulls out of CCB Investment, Stays in Underwriting Syndicate
China Construction Bank has begun pre-marketing with a full complement of underwriters - but without a planned $500m investment by Credit Suisse. A tip 'o the hat to our friends at FinanceAsia who scooped the story (even got credit from the Journal)
CCB's decision to drop CSFB's proposed investment was made last Thursday after it became clear the IPO would otherwise get delayed. This is because the only 'connected party' a bookrunner can technically allocate stock to is its own asset management arm unless it has received special regulatory approval.
CSFB, however, had been mandated late in the IPO process as a replacement for Citigroup, which had decided not to make a strategic investment in CCB and consequently been dropped as a bookrunner. As such, CSFB had not yet received special approval from the stock exchange by the time the IPO reached the final stages of listing committee approval and CCB did not want to wait around to get it.
At the same time, dropping CSFB was not really an option given its presence would mollify those members of Hong Kong's listing hearing committee who had been voicing concerns about the independence of fellow lead managers CICC and Morgan Stanley, both of whom have strong links to CCB.
As you may have read here previously, we think it somewhat odd that an underwriter who is being paid tens of millions of dollars could ever be considered "independent." Isn't that why the underwriters are not permitted to publish research during the blackout period? Who listens to brokers anyway?
What investors might find interesting is that, given a choice between being an investor and being an underwriter, CS would rather be an underwriter. What does that say about expected returns?
* Dena Bank says 1st quarter loss on bonds an aberration; expects full-year profit with expanded NIM.
* BRI looking for new President as Rudjito named to head new deposit insurance agency.
* Shinhan FG incorporates Shinhan Life Insurance for no real reason at all.
* UFJ Holdings ups 6mo forecast (to 9/30) to JPY335bn from JPY140bn in last ever preview.
* "Chinese Joe" cons Commonwealth Bank out of at least A$2m in loans via internet applications.
* Yuchengco may cut stake in RCBC, but wants to retain control.
* Ping An to buy 1.75% stake in Industrial Bank, joining affiliate Hang Seng's 15.98%. I wonder what this might mean for Ping An Bank? UPDATE: Ping An is also bidding for an additional 2.5% stake in Industrial Bank.
September 26, 2005
HSBC Is/is Not Looking at KEB, Which Is/is Not For Sale. Got it?
Reuters reports HSBC is looking at buying out Lone Star's 51% stake in KEB, a credible story as HSBC has long wanted to be in Korea and KEB is one of only a few possible banks left to buy. Kookmin is too strategic, Woori has cost the government too much money, Hana has other entangling alliances, and Shinhan will very probably do anything to avoid being acquired.
An HSBC official is quoted as saying:
"There will be an announcement on the merger talks soon," the executive was quoted as saying.
An HSBC spokeswoman in London declined to comment, while a Seoul-based spokeswoman for Lone Star told Reuters she had not heard of the talks with HSBC.
HSBC has been down this road before in Korea, most famously trying and failing to acquire Seoul Bank (now part of Hana) starting in 1998, but remains dateless while Citi and Stanchart have already had their fill.
Update: HSBC (somewhat predictably) denies that it will acquire KEB, saying that the quote above
"...is neither based on the fact nor from anyone from our bank," Lee Seung-hoon, a spokesman at HSBC in Seoul told Dow Jones Newswires.
He added that it's too early to say whether HSBC is interested in the acquisition of the country's fifth largest bank because it's not clear whether Lone Star wants to sell its stake or not.
It's certainly clear to me that Lone Star wants to sell - that's their business. Price is an altogether different issue, however. In any case, HSBC routinely denies everything until it happens; I would be frankly astounded if they have never talked with LS about KEB. Perhaps its not to be just now, tho.
Meanwhile, the Korea Times interviews John Bond and comes away with the headline "HSBC Says No Plan to Buy KEB ‘at Present’", which is something of a different kettle of fish as "at present" might mean anything from "this year" to "before dinner."
`We don’t have to do an acquisition to expand our business," said Sir John, explaining why he has previously explored acquiring Seoul Bank, Korea First Bank, and Koram Bank. "We can expand our business in Korea by investing in the businesses we have built over the past 25 years."
Another update: KEB chief and Lone Star appointee Richard Wacker says to the JoongAng Daily that it would be very difficult to see any sale of KEB this year.
According to Mr. Wacker, the Texas-based private equity fund told the managers of Korea Exchange Bank that there were no new developments regarding a sale. He added that his bank has received no requests from Lone Star to make preparations for a sale.
Well, not quite a denial from Lone Star, but perhaps another indication that the fund is holding out for a higher premium than HSBC is willing to pay.
Nevertheless, the HSBC rumour has stirred up the always-fierce Korean unions, who issued a pre-emptive HSBC-bashing manifesto saying they oppose a sale to the UK bank:
"We don't care whether a bidder for our bank is a foreign bank or local bank," the statement said. "But, as for HSBC, it does not offer regular jobs to its new employees. After hiring them for two years, the bank picks only one or two out of every 10 new workers as regular workers. We cannot accept that."
Absolutely final update: Hana Bank denies a report that it did not bid for KEB.
September 22, 2005
Advancing to the Rear
New Taiwan Business Bank chairman Michael Chang said that he plans to restructure the bank without any layoffs: "We are not afraid of having a lot of people. We're only afraid that people aren't being used efficiently."
He also disavowed any merger plans for the near-term:
"The mission that the government gave me was not a merger and I told them mergers are not my strong suit," Chang said. "I have no pressure from the government to merge by a certain time. Once we do things right, if people have faith, they are welcome to buy our stocks on the open market."
Presumably, if people don't have faith in this probably unworkable plan, they are free to short -- anyone have borrow in TBB?
* Indian ATM networks still balkanized (who belongs to which).
* CCB IPO approved by HKEx in shocker. No luck for CSFB's last-minute play for joint lead.
* Combined MUFG to tie-up with Norinchukin Bank in consumer finance; as previously discussed will merge UFJ Card and Nippon Shinpan Co (Nicos: 8583.JP) into new UFJ Nicos unit. (Original merger release)
* LG Card delinquency ratio falls to 9.55% in Aug.
Indian Banking Consolidation: Myth or (Delayed) Reality?
"...competition levels have been increasing, but have not reached a point of unsustainability yet. Our banks are still able to sustain in the current form. Even less efficient banks are able to survive in this 'walled garden' where competition has not been allowed to freely come in. Though there are great opportunities in India, neither are private banks allowed to acquire PSBs nor are foreign banks granted a free entry."
"Moreover in any market, it is the leaders who enhance consolidation. But the leaders in Indian banking have no incentive to do this as they are doing relatively well in the 'walled garden'. They are not in a rush to play the role of the bridegroom. Thus, consolidation remains sub-optimal."
More after the jump:
Puri has been right on this issue before: in a 2001 piece for Mckinsey Quarterly (Revitalizing India’s banks, with Anu Madgavkar and Joydeep Sengupta) he went against the then-current wisdom that consolidation was imminent, saying:
"...full-scale foreign ownership of banks that are currently owned by the government is unlikely to come for at least three years, given the lack of political consensus on the issue and opposition to privatization."
H.N. Sinor, Chief Executive of the Indian Banks Association, disagrees, saying that despite "cynicism" over M&A we will "be seeing major consolidation efforts in the banking sector," citing "the need for efficient capital management under Basel-II norms which are likely to come into effect within 18 months."
Cash Cards Crash in Taiwan
Recent Chinatrust monthly earnings figures show an alarming rise related to the bank's new "Wish" cash card business, which amounts for some 3% of total loans. Delinquencies are well into double digits - very atypical for the history of this business, which was originated in Taiwan by market leader Cosmos Bank, issuer of the "George and Mary" card (a homonym for the Chinese words for "borrowing money and easy to access"). Taishin, with its "Story" card, has also been an aggressive late entrant.
Is this a sign of overall credit deterioration? Chinatrust, for one, says "No," that their cash card customers were almost entirely different from (for example) their credit card customers. This seems to imply that they went very downmarket when entering the business. An alternative theory is that the market is topping out and that at least some consumers are too levered.
Chinatrust's explanatory email after the jump:
Subject: Chinatrust Financial Holding Company - Views on the recent development in the Taiwan market
Due to the latest development happened in the local market, we would like to take this opportunity to communicate with you about our views on two specific areas.
* Update on consumer credit quality
1. Due to faster-than-expected market expansion and increasing debt servicing level among the cash card borrowers, Chinatrust Commercial Bank has observed upward trend in charge off ratios of its cash card portfolio.
The bank expects its cash card charge off ratios will continue to rise slightly for another quarter and then might observe improvement in the 1st or 2nd quarter of 2006.
2. The management has started to take some preventive measures since March 2005, we will continue to monitor the effectiveness of these actions and will continuously adjust upon that. For example, the bank has started its early collection efforts for its overdue loans from 1st day by waving the 10 days grace period used to be granted to the cardholders in the past. In addition, credit line has been capped for high-risk cardholder through increasing frequency of loan review with JCIC etc.
3. Since the cash card portfolio only represents 3% of the bank's total lending exposure (including credit card revolving balances) and the bank has slowed down its expansion in cash card business, the negative impact on the bank's earnings will be around NT$ 600 - 700 million in increase in provision charges.
4. As of credit card, the charge off ratio is still in line with the bank's expectation provided a healthy growth in the revolving balance driven by increasing customer spending rather than from new balance/customer acquisition. The credit card net charge off ratio is expected to continue to trend upward in the next few months but control at below 5 - 6% and will become normalized afterwards. As the bank has accumulated sufficient reserves over time, the projected negative impact will not go beyond NT$1 billion in 2005.
5. The bank's credit card gross write off amount jumped to NT$724 million in August was for fulfilling the "358 policy" and the bank, apart from its 150 days charge off policy, took additional write offs in order to maintain the 90 days overdue NPL ratio well below 3%.
6. Overall, the bank has a well balanced (with 45% in corporate lending v.s. 55% in retail lending) and diversified (with 20% exposure to unsecured personal lending) portfolio to ensure its earning capability will not be significantly impacted by credit cycle in any particular segment. In addition, the bank's balanced revenue stream will also ensure its earning capability remains unaffected.
7. The bank's successful track record of delivering sustained profitability and proactive risk management has proven itself as a premier banking franchise in Taiwan. Due to the above mentioned adjustments, the bank expects the growth of this year will slow down but maintains flat to low single digit growth year-on-year. Overall, the bank's profitability remains superior to the industry's average.
* Our views on recent M&A development
1. As you may know already, there's a series government related banks auctions in the market. Again, as Chinatrust's principle, we look the deal purely from shareholder value point of view, regardless the temptation of significantly increase in size. We view, as the rules of the games defined, the deals inherited with execution risk and the prices we can't afford.
2. Although we believe the incomplete process of recent deal might have negative impact on government's enthusiasm in Taiwan's financial reform. However, we expect the consolidation trend will continue but might be in different forms or schedule.
3. Market share of 10% is a long-term aspiration to Chinatrust. Even there's a deal done by our competitors, we are not obligated to follow suit.
4. Chinatrust will continue to look into all feasible alternatives with prudent measures and disciplines. Again, organic growth always comes first.
Should you have any further questions, please free to contact us.
September 21, 2005
Deutsche Pips StanChart for 10% Huaxia Stake
Deutsche Bank is set to be the lead player in a consortium which will acquire almost 14% of Huaxia Bank for approximately $330m. Deutsche will have a 10% stake, with financial partners taking up the remainder, according to preliminary reports. DB was previously a reported bidder for a stake in Bank of Beijing which was sold to mighty Dutch masters ING Group. In tying up with Huaxia, DB beats out rumoured partner Standard Chartered, who will have to be content with their 20% of start-up Bohai Bank for now.
In an unrelated but comically-juxtaposed news item, DB CEO Josef Ackermann said today that the bank will focus on "organic growth" rather than acquisitions.
September 20, 2005
Remaining Gov't Stake in BCA on Sale *Now*
BCA (BBCA.IJ) is suspended pending the government's sale of its final 5.02% stake in the bank, representing 618.24 million shares. The stock closed at IDR3475 today, and will be suspended until the sale takes place. Stock may be gone by Asia mornin open, so get 'em now if you'se wants 'em.
UPDATE: A very handsome man with a large prop book informs us that the deal is spoken for already via pre-arrangement...thanks for playing. Any complaints to J. Ackermann & Co.
UPDATE 2: Sold at 3550 vs. 3475 previous close...nice premium.
The Sad State of Taiwan Business Bank
It seems like the government may have decided to jettison TBB before they thought to ask if anyone wanted it: the auction being conducted failed when no bidder (even with heavy government incentive) would meet the minimum asking price. Even so, the bank was forced to endure a taste of union power when it underwent a strike by some 2,500 of its 4,000 employees. This may not have queered the auction, but certainly contributed to the resignation of TBB Chair Herman Chung, soon to be replaced by Polaris exec Michael Chang.
In our last entry, we questioned why any bidder would guarantee the employees the three year no-fire contracts they want, or even the two-year guarantee they have been offered. TBB is fundamentally unprofitable and loaded down with bad debts; its major asset being its branch network.
Having seen the carnage inflicted on Taishin's share price for making its insane above-market purchase of Chang Hwa Bank shares from the government, it is even less surprising that high bidder E.Sun was still far away from the government's reserve price.
The Taiwanese government needs to get serious about exercising some strong management discipline at TBB, forcing it to meet performance standards or to be dismembered and sold in pieces with maximum ensuing job losses. In its current state the bank is a drain on the economy, as well as on healthy private banks, and the farce of an auction with no takers casts a pall over the entire financial sector.
* Delta Asia denies money-laundering charges.
* ANZ guarantees part time work in innovative move to retain older employees.
* Bank of Tokyo-Mitsubishi and Shinwa Bank in SME lending tie-up.
* Sichuan shows its banking wares to 27 foreign banks looking for partners, including Deutsche, OCBC, BEA, BTM, Citi, HSBC. (where the hell is Sichuan again?)
* NAB, Westpac cut mortgage rates.
* BBL to open 14 new outlets by October. (see all Thai banks' branch networks)
* BEA receives approval for two new mainland offices: subbranches in X'ian and Dalian.
* HSBC wants to sell its own-brand insurance in China, not just that of affiliate Ping An. Perhaps not the best news for Ping An...
* Chinese banks CCB and ICBC will move to quarterly compounded interest on checking accounts from annual; analyst estimates change will cost CCB RMB15m/year.
September 19, 2005
* Shenzhen Development Bank needs to raise capital to lift CAR from 3.1% to 8%; plans equity offering.
* HK Banks are cutting mortgage rates again on slow volumes; new benchmark is Prime - 2.35%.
* CBRC deputy director says aim is to "treat foreign, joint-stock and state-controlled banks equally."
* Tokyo Star Bank to list in $700m IPO October 25th.
* China's AMCs not solving the NPL problem, creating problems of their own?
* Thai MoF proposes to buy NPLs of individuals from banks, restructure.
Delta Asia Run Wanes
Banco Delta Asia SARL appears to have weathered the storm over its money-laundering activities, at least for the moment, with the press reporting this morning that no further outflow of deposits has been seen, and even that some moneys are returning.
From today's SCMP:
Stanley Au Chong-kit, chairman of the Delta Asia Financial Group, visited the Lisboa branch at 2pm, shaking hands with each staff member and greeting customers.
"Their six-party talks [on North Korea's nuclear programme] failed, so they vented their frustration at me," Mr Au joked with one customer, referring to the US claims.
Customer confidence had been restored, said Mr Au, who added that "several tens of million dollars" had been redeposited with the bank. "I believe the bank run has come to an end," he said.
However, the bank will still be run temporarily by two administrators appointed by the Macau MA, and faces being cut off from its correspondent banking relationships if the US can prove its case.
September 18, 2005
* China Everbright Bank awaits $1.2bn capital injection from government; will then proceed with stake sale to Standard Chartered.
* Bank of India predicts 194% net income growth this year; plans expansion into Pakistan, Sri Lanka, Bangladesh.
* China CBRC may liberalize deposit-taking limits on foreign banks.
* India's Nainital Bank (affiliate of Bank of Baroda) plans 2006-7 IPO to meet CAR requirement.
* Bank lending falls in Shanghai.
* Loan growth in the Philippines slows to +4.0% YoY in July.
* Syndicate Bank "in the pink of health"; will merge 4 subsidiary rural banks in Karnataka.
* ANZ Royal Bank opens for business in Cambodia with first four branches; government hopes to "trigger the entry of more international banks."
Our updated Cambodian banking links.
China May Allow Higher Foreign Ownership of Banks
"We are working on a proposal how we can lift the cap," [China Bank Regulatory Commission Chairman Liu Mingkang] told reporters in Beijing on Monday. "We will have future changes and the door will be open much wider."
Current regulations permit 25% collective ownership by foreigners of a single institutions, with no single shareholder permitted to hold more than 19.9%.
However, there have been signals in the past that this limit might only apply to the more strategic national banks, with some of the more undercapitalized city commercial banks having supposedly been given permission to sell up to 80% stakes to foreigners in order to raise funds for NPL write-offs.
Expect no change, however, in the actual control over the big four state banks, which will remain at least 51% owned, and entirely controlled by, the central government.
Wolf to Piglets: Naught to Fear
Citigroup regional CEO Robert Morse wants Thailand to liberalize its financial system further to allow more foreign participation, but says that local banks have nothing to fear from increased competition.
The Bangkok Post reports:
''Financial services companies compete at the level they have to compete,'' Mr Morse said in a recent interview in Bangkok.
''If you look at the past history around the world, the concern that local companies can't compete has proven mostly unfounded.''
''I don't think local firms give away anything to foreign institutions,'' Mr Morse said, as the headquarters of Bangkok Bank, the country's largest, looms in the skyline. ''If there was more competition, I believe that Thai companies would offer a positive surprise.''
This has been mostly the case in Thailand, where DBS, Stanchart, and UOB have failed to make much of an impact, and HSBC saw its bid to purchase the feculent Bangkok Metropolitan Bank rejected during the post-crisis fallout period.
Citibank, however, has been much more successful in positioning its retail brand and high-end corporate services in Thailand, and now employs some 2000 people despite its single-branch status.
Delta Asia Money Laundering Inquiry Spreads; Sparks Bank Run
The investigation into money laundering and potential terrorism links at Macanese banks has begun to have an impact. On Thursday the U.S. Treasury Department formally designated Banco Delta Asia SARL as a "primary money laundering concern." News of the sanction prompted a run on the bank, with almost 10% of deposits withdrawn on Friday and Saturday and additional cash supplies being shipped in from Hong Kong to meet demand.
More below the fold:
From the Treasury finding:
"Banco Delta Asia has been a willing pawn for the North Korean government to engage in corrupt financial activities through Macau, a region that needs significant improvement in its money laundering controls, said Stuart Levey, the Treasury's Under Secretary for Terrorism and Financial Intelligence (TFI). "By invoking our USA PATRIOT Act authorities, we are working to protect U.S. financial institutions while warning the global community of the illicit financial threat posed by Banco Delta Asia."
In conjunction with this finding, Treasury's Financial Crimes Enforcement Network (FinCEN) issued a proposed rule that, if adopted as final, will prohibit U.S. financial institutions from directly or indirectly establishing, maintaining, administering or managing any correspondent account in the United States for or on behalf of Banco Delta Asia.
Such a finding, replete with specific allegations, is very unusual, to the point where it would be very surprising if there is not substantial evidence to back it up.
Note for the record that Bank Chairman and controlling shareholder Stanley Au has called the allegations a "ridiculous joke."
Regardless of the truth of the allegations, the government of the Macau SAR is taking the situation very seriously, knowing that a bank run could lead to the collapse of the bank or even undermine the entire financial system. On Saturday, the Macau Chief Executive appointed two administrators to oversee the bank and "participate in [its] administration," but pleaded with the public not to put credence in allegations, but to wait for authoritative findings.
Remember also that outstanding investigations of Seng Heng Bank and Bank of China's Macau operations on the same grounds are also proceeding - if similar charges are levied against these institutions the fallout would be much more serious.
Has Macau been lax in enforcing anti-money-laundering ordinances and controls?
While the Monetary Authority is generally considered a respectable bank regulator, note that the IMF's last review of financial systems regulation and supervision in Macau found the AMCM "materially non-compliant" in enforcing anti-money-laundering principles.
HSBC to Issue Cards in India Without Income Proof
HSBC and hypermarket retailer Star India Bazaar have teamed up to launch a new co-branded credit card aimed at housewives. The Business Standard highlights that the card will be offered to applicants without an income verification requirement.
HSBC’s move to do away with the requirement of income proof, however, goes against the spirit of the RBI draft guidelines on credit cards that says banks must be responsible and issue cards only to those with independent financial means after completion of all know your customer (KYC) requirements.
Puneet Chaddha, head, cards and retail assets, HSBC, however, said, “Housewives will be the target customers for the card and this category of consuming class cannot be treated as without any income source. The credit limit on the card will be as low as Rs 3,000 to start with and is unlikely to create any credit hassles.” The card is being aimed at the 46.4 million consuming class households.
HSBC India does require minimum income on its regular and gold cards, along with verification documents.
September 14, 2005
Making the Rounds
The Banker is in Vietnam until the weekend, seeing the local sights. More when he returns.
September 12, 2005
CCB Listing Technicalities Abound
CCB seems to be winning some and losing some in its pre-listing discussions with Hong Kong securities regulators. On the positive side, CCB appears to have won waivers from the standard HK listing rules which set aside a minimum 10% of IPOs for retail investors, and permit a clawback in the case of especially hot deals which gives retail punters up to 50% of shares on offer. It's certainly good that we are worrying about CCB being potentially 100x oversubscribed...
On the downside, the stock exchange listing committee has "expressed concerns about the independence of the bank's listing sponsors, all of whom are closely related to the mainland lender." Of the current lead underwriters, one (CCBIC) is owned by the bank, one (CICC) is a jv between the bank and Morgan Stanley, and the other one is Morgan Stanley itself.
According to Listing Rule 3A, a sponsor cannot have a current business relationship with the new applicant, which "would be reasonably considered to affect the sponsor's independence in performing its duties, or might reasonably give rise to a perception that the sponsor's independence would be so affected".
I suppose that several hundred million dollars in fees (on a $5-7bn offering) isn't enough to affect the good judgement of the sponsors. Haven't we already learned how craven Morgan Stanley can be even when it's not affiliated with a company?
The major concern is that this "issue" might delay the offering:
In order to resolve the issue, it may be necessary for the Hong Kong Exchanges and Clearing's listing committee to hold a special policy meeting in order to seek opinions from all members. If members do not agree to a special meeting CCB's planned US$5 billion to US$7 billion initial public offering, due to kick off next month, seems likely to be delayed as the next scheduled policy meeting is also in October.
The SCMP floats the idea that this problem could be solved by adding CSFB to the list of underwriters, despite the fact that Credit Suisse is still negotiating a $500m investment in CCB. Pardon us if we can't see the added independence here.
* Maybank eager for expansion in Thailand, Indonesia, Vietnam, and Pakistan. Also, changing articles of association for share buyback.
* New Vietnamese banking roadmap announced, aims to privatize state banks and liberalize interest rate formula.
* Fox-Pitt looks for value in Aussie life insurers; finds none.
* HBOS unit BankWest plans to continue aggressive growth: "We have got a strong parent. It's got the technology, the strategies and unlimited capital."
* Minsheng proposes to offer 1.55-for-10 bonus share deal on share reform.
September 10, 2005
HSBC Puts Asian Merchant Card Processing Into JV
Under the agreement, HSBC will transfer its existing credit card merchant acquiring businesses in 10 countries and territories in Asia to the new company. HSBC will retain a 44% interest in the joint venture and will transfer the remaining 56% in the new company to Global Payments for a consideration of US$67.2 million. The deal is subject to regulatory approvals and certain conditions.
Falling Knife Finally Caught
After at least 7 years of year-on-year contraction, Japanese bank lending has finally ticked up a less-than-robust 0.2% in August, in a possible precursor to what the WSJ calls "a cycle of expansion." Although the turn for the Japanese banking sector has been called perhaps a dozen times in as many years with no success, this looks like a solid economic breakout.
The Journal noted:
...[B]anks are much healthier as they have been cleaning up their bad-loan problem. If banks start to play the essential role as the provider of credit, economists say, Japan's economy could enter a positive growth cycle. In such an environment, corporations take out loans to invest in production and sales facilities and households borrow money to build homes or purchase big-ticket items such as cars. Already, capital spending by Japanese companies is projected to expand by 10% or so in the current year ending March 31, which could eventually encourage them to borrow more from banks.
Analyst response is positive but not as effusive as the press:
* Kobayashi-san at Deutsche notes that the moving factor behind the good numbers was expansion at the Tier-1 regional banks, with both the larger city banks and smaller Tier-2 regionals still down YoY.
* CLSA has no specific loan growth comment that we saw (probably busy with the conference), but is generally bullish on regionals, having initiated Musashino Bank (8336.JP) on Friday with a Buy.
* UBS sees as a "surprise" but notes "underlying loan demand has stabilised."
* That's where we got bored and left off.
September 08, 2005
Bank of China Probed by US Investigators
The WSJ reported this afternoon that Bank of China and two Macanese banks - Banco Delta Asia SARL and Seng Heng Bank - are under investigation due to alleged connections with North Korea which involve money laundering, counterfeiting, drugs, and arms sales.
Press reports connect the investigation, which has evidently been ongoing for several years, to the recent seizure of so-called "supernotes" (high-quality counterfeit US currency) in the US and Taiwan.
This is a repeat investigation for Delta Asia, which has been under the microscope for a decade. The WSJ article described Delta Asia as "a top candidate for being placed on a Treasury Department blacklist" of banks facilitating money laundering, which would deal a heavy and possibly crippling blow to the bank's business. Likewise, Seng Heng (no relation to Hang Seng), controlled by gambling tycoon Stanley Ho, will be looked at closely given Mr. Ho's close ties to the North Korean government.
Are the allegations true? While we have no direct knowledge, it would be incredible if banks in Macau have not been facilitating money laundering, given the amount of illicit cash that washes into the casinos and various less-savoury schemes in the territory. As for Bank of China, its internal controls have been so porous that it is easy to believe that some part of the bank was facilitating money laundering, if only unintentionally.
What are the prospective penalties? Stiff:
Penalties for money laundering and terrorist financing can be severe. A person convicted of money laundering can face up to 20 years in prison and a fine of up to $500,000.11 Any property involved in a transaction or traceable to the proceeds of the criminal activity, including property such as loan collateral, personal property, and, under certain conditions, entire bank accounts (even if some of the money in the account is legitimate), may be subject to forfeiture. Pursuant to various statutes, banks and individuals may incur criminal and civil liability for violating AML and terrorist financing laws. For instance, pursuant to 18 USC 1956 and 1957, the Department of Justice may bring criminal actions for money laundering that may include criminal fines, imprisonment, and forfeiture actions. In addition, banks risk losing their charters, and bank employees risk being removed and barred from banking.
Moreover, there are criminal penalties for willful violations of the BSA and its implementing regulations under 31 USC 5322 and for structuring transactions to evade BSA reporting requirements under 31 USC 5324(d). For example, a person, including a bank employee, willfully violating the BSA or its implementing regulations is subject to a criminal fine of up to $250,000 or five years in prison, or both. A person who commits such a violation while violating another U.S. law, or engaging in a pattern of criminal activity, is subject to a fine of up to $500,000 or ten years in prison, or both. A bank that violates certain BSA provisions, including 31 U SC 5318(i) or (j), or special measures imposed under 31 U SC 5318A, faces criminal money penalties up to the greater of $1 million or twice the value of the transaction.
- FFIEC Bank Secrecy Act Examination Manual (emphasis ours)
While the US can't revoke the charter of a foreign bank, it can revoke its license to operate in the US. Neither of the Macau-based banks has a branch or rep office in the US, so they are safe on that count, but BOC most assuredly does and so is vulnerable.
In addition, if US authorities prove their case to international regulators, they can effectively cut off rogue banks from access to the international finance system by preventing interbank transfers and payments, access to clearing, and correspondent banking.
Although regulators take this financial crime more seriously than almost any other (remember that even the very well-connected Riggs Bank ran afoul of the regulations and was forced into a sale), cutting-off BOC from international markets would be seen as a very aggressive diplomatic act. Unless there is much more to the story than has yet been revealed, this will not happen.
However, the bank will most likely be fined several hundred million dollars, and be restricted in its activities in the US for some time. It is certainly not good timing for BOC's planned IPO. I'm sure that RBS has its best anti-money-laundering team on a plane right now to see if they can help the situation.
As for the two smaller banks, they will be under heavy pressure to sell out lest they taint the entire market. I would not be suprised to see both merged into Hong Kong banks by year-end. A change of ownership (along with smaller fines) would probably propitiate US regulators, and the PBOC will (my guess) freely flay the small banks so as to demonstrate its bona fides and be able to cut a good deal for BOC, which is much more strategic to them.
September 07, 2005
Taiwan Business Bank Prepares for Strike
Taiwan Business Bank is bracing for a strike set to begin tomorrow, with estimates that some 4000 of its workers will walk off the job to protest plans to privatize the bank, which they feel (almost certainly correctly) will lead to staff cuts. Union leaders are demanding a 3-year guarantee of jobs, while the government is reportedly ready to offer only a 2-year guarantee.
The degree of overstaffing at TBB can be roughly estimated from the fact that some 600 seconded workers from other state banks are expected to keep operations running fairly normally while their 4000 proletariat brethren man the picket lines.
Banco de Oro Tries Again With Equitable
Banco de Oro, having purchased the Go family's 24.8% stake in Equitable-PCI Bank in August, has indicated it intends to take another run at acquiring the government's 38% stake in EBC and merging the two banks. BDO last tried to acquire a stake from the SSS in 2003, but was rebuffed by a court challenge which is still ongoing. Not known is how BDO intends to overcome this issue, or how it plans to budge the SSS from its asinine insistence that it can only sell its shares for PHP92 each, versus the PHP49 traded price.
If successful, a merged BDO-EBC would likely be the 2nd-largest bank in the Philippines, just topping BPI but behind Metrobank. Look for BPI to take steps to maintain its lead in the event this deal becomes a reality.
* Pressure Building on Australian Banks: Fitch
* Hang Seng opens Beijing branch; disavows China bank purchase ambitions beyond Industrial Bank stake.
* Indonesian motorcycle FinCo Mandala Multifinance lists on JSX; down in early trading. (MFIN.JK)
* Westpac, ANZ make executive appointments.
* Bank of Ayudhya touts bancassurance as the way to higher non-int income.
September 06, 2005
HK Banks Push For Expanded RMB Powers
Hong Kong's bankers expect a liberalization of the rules which last year allowed them to take RMB-denominated deposits from private individuals in Hong Kong, and to settle payments and credit cards in the mainland currency. This morning's SCMP quotes ICBC (Asia) Deputy General Manager Stanley Wong as saying:
"The second phase will be relatively small. The reforms are more likely to be a friendly gesture to show the central government's support for Hong Kong rather than a radical change"
"We expect there will only be small-scale changes and any profitability will be minimal," Mr Wong added.
Our recent conversations with bankers in the territory have revealed that they hope to get approval to take RMB deposits from corporates, and to make trade finance loans in RMB. Using their RMB deposits to fund loans instead of selling them back to the clearing bank (BOCHK) would permit banks to earn a much wider spread than they presently enjoy on the business. Even so, the impact on profitability in the near term would be mainly theoretical.
Note that no one we spoke with anticipates that HK banks with branches in the mainland will be allowed in this second phase to recycle their RMB deposits in Hong Kong into RMB loans out of their China offices. That is likely a minimum of 3-5 years down the road, in their view.
* Indonesia raises 1mo rates by 50bps to defend Rupiah
* Commonwealth Bank of Australia acquires 19.9% of Hangzhou City Commercial Bank for $77m.
* Unidentified Singaporean Co. buys 6.88% stake in Huaxia Bank at auction at 16% discount to traded price. UPDATE: bidder revealed as Singapore PE fund Pangaea Capital Management.
* Indonesian Gov't to sell remaining stakes in BCA (5%), BII (10%).
* Fitch forecasts strong performance from Korean banks in 2005-6.
A Curious Privatization
Indonesian State Minister for State Enterprises Sugiharto was reported in the press today as saying he favors the proposed acquisition of the government's stake in BTN (Indonesia's 8th-largest) by a consortium of state enterprises including state bank BNI and workers insurance company PT Jamsostek.
In addition to the openly-stated desire to avoid selling the bank to foreigners, the plan is curiously presented as "aimed to meet the privatization target." Selling a state bank to a non-transparent consortium of other state-owned enterprises (especially one led by BNI, the most hapless major bank in Indonesia) is not a privatization in our book.
Sugiharto was very clear about his motivations:
"The consortium comprises state companies through which the government would have full control over BTN. This is also aimed to prevent foreigh companies from taking over the bank," Sugiharto said in a hearing with the House of Representatives` commission on trade, industry and investment here on Monday.
Coming on the heels of the scandal at state-controlled Bank Mandiri, where the entire senior management team was removed for corruption in May of this year, we figured that the government would have lost its taste for the banking business. We hate to see Indonesia back to its old tricks, especially after the banking system has been a rare example of a comprehensive clean-up.
If the Indonesian government is serious about saving BTN, they should immediately cancel this plan and sell a minority stake with management control to a responsible banking entity - which, I am sorry to say, means a foreign bank or foreign-controlled domestic bank. We have seen how the other alternatives work out.
Official Bohai Launch
As expected, StanChart announced in Beijing today that it will invest $123m for 19.9% of the newly formed Bohai Bank, which will be based in Tianjin. The official signing ceremony was attended by PM Tony Blair, Premier Wen Jiabao, and SCB Chairman Bryan Sanderson.
StanChart Looks For More Malaysian Branches
StanChart Malaysia CEO Shayne Nelson wants to add to the bank's existing line-up of 31 branches when Bank Negara unveils new branching rules at year end.
Although the new plan is expected to mandate that foreign banks (as STAN is considered despite its century-plus tenure in Malaysia) open more rural branches in order to get permission to set up more-coveted urban outlets, Nelson argues that Chartered should get credit for its already-widespread network:
"We have not just been opening branches in the cities. We have 31 branches, of which seven are in the Klang Valley, two in Johor Baru and one in Penang.
The rest are in rural areas or smaller towns. The weighting of our branches are more non-city.''
Nelson also touched on the desirability of Malaysia as a banking market:
Malaysia has reached a stage where there is a potential for a big lift in GDP per capita. The demographics of Malaysia are strong where 42% of Malaysians are under the age of 25. So, as a financial services market, Malaysia is a good market,'' Nelson added.
He does not believe the consumer market will undergo a patchy stretch.
“At Standard Chartered, NPLs (non-performing loans) are down to 2% and the direction of our arrears and portfolio continues to improve,'' he said.
He said Malaysia's high savings rate will help reduce the aggregate indebtedness of the consumer in global terms and that the credit bureau was a great help in assessing credit risk.
(via The Star Online)
Thai Deposit Rates to Rise Sharply, Says KTB
Krung Thai President Apisak Tantivorawong expects a stiff increase in deposit rates in 2005-6, as banks try to stem deposit outflows.
More after the jump:
He thinks 1-year deposit rates could reach parity with inflation, according to an interview in today's Bangkok Post:
Moves by the central bank to tighten monetary policy and implement measures to encourage more long-term household savings will continue to put pressure on interest rates.
Mr Apisak said he believed the Bank of Thailand would likely continue to draw liquidity from the market and push money market rates upward through 2006, which in turn would force commercial banks to also increase rates to manage their positions.
He said Krung Thai Bank had attracted over five billion baht in new deposits over the past six months through its new four-year term deposit that pays 3.75% annually.
If Khun Apisak is correct and inflation stays at its current level of 5.6%, this would means a 350bp rise in 1-year rates by end-06. UBS expects inflation for the rest of 2005 in the 4-4.5% range, which would mean more moderate increases, but notes: "Inflationary
pressure, meanwhile, is picking up." [link: p/w required]
BOC NPLs Going the Wrong Way
Perhaps, but why are loans still going bad at BOC even after the extraordinary write-offs taken to prepare the bank for sale? Presumably the RBS/Merrill Lynch consortium was aware of this, but it will be interesting to see what the IPO prospectus has to say about it. If BOC lists in the fourth quarter we may never see anything later than June 30 financials.
The Giant Gets Hungry
The FT reports that Citi CEO Prince is planning to aggressively expand through acquisition in foreign markets (including Asia)...once they have worked through their regulatory problems. This despite the reports of some that last year's KorAm acquisition in Korea has been slower-than-expected to gain momentum. Perhaps all the naysayers are disgruntled employees?
If I were Chuck, I would be spending a lot of time thinking about what to buy in Asia.
September 05, 2005
UFJ kicks it SEC-style
UFJ Holdings reports its US GAAP earnings for FY03/05 this AM in New York, for all you accounting wonks who like to compare to IAS and JAS.
Nikkei Re-jig adds Sinsei, MTB
The annual Nikkei index rejiggering is upon us; no signs of any massively unexpected shifts leading to windfall profits for bank investors - more's the pity. Nevertheless, we press on:
* OCBC adds new risk manager from CIBC, shuffles execs.
* Beijing Rural Credit Cooperatives expects to complete its reorganization in October and re-launch as Beijing Rural Commercial Bank, incorporating 141 former cooperative entities. A RMB5bn share placing is underway, and the central government will bolster capital with an RMB2bn buyout of NPLs, which post reorganization are described only as "below 15 per cent."
* Singapore's DBS named "Best Asian Bank" by Financeasia.
* HK's "outlaw" insurance companies keep selling policies to mainlanders.
* Private equity funds increasingly target banks, especially in China.
September 04, 2005
* Chinese authorities have arrested all 1697 bank employees resposible for the deterioration of the banking system into a morass of corruption and NPLs. Now that the miscreants are behind bars, the IPOs can proceed! (Bloomberg)
* Taiwan bank NPLs fell in July, but delinquencies on cash cards rose sharply. (Taiwan Economic Journal)
* CBC statistics show average spreads widening in Taiwan. (Taiwan Economic Journal)
September 03, 2005
* Average Mainland Chinese bank lending rates are rising much faster than cost of funds or benchmark rates, leading some to conclude that Chinese banks are learning to price credit risk.
* CCB will reportedly launch its HK IPO next month, with pricing in late October or early November. MS & probably CSFB to lead.
* Bank of Shanghai 1H05 profit +22% YoY.
* Just got around to reading last week's Barron's; Leslie Norton highlights Japanese financials therein. Quite a strong piece, quoting among others CLSA's Dan Tabbush.
* "Paper or Online? Many Bank Customers Still Pick the Old Way," NYT
September 02, 2005
Bohai Bank gets ready to go
Planned new national bank Bohai, which was reportedly approved in April, will unveil its initial organization plans in Beijing next Tuesday, per DJN. Tianjin-based Bohai is expected to gain credibility (and cash) from 19.9% founding shareholder StanChart.
* GE plans to expand its consumer finance operations in India into a bank, growing from 118 branches in 60 cities to 200 in 110 cities over the next three years.
* Thai deposit rates increase 25-75bps.
* Deutsche rumored close to Huxia purchase.
* Henderson Land chairman Lee discusses taking a stake in Guangdong Development Bank.
* Westpac deploys mobile mortgage brokers.
Asia Financial Results Marred by High Provisions
ACB's income fell by 29% on higher provisions for borrower Moulin Global Eyecare Holdings, which has gone into liquidation.
NIM also fell by 33bps despite double-digit loan growth.
Taureau dans un magasin de porcelaine?
BNP Paribas has revealed that it is the latest in a string of global banks chasing after stakes in Chinese institutions, having earmarked some of its €2bn a year war chest for China acquisitions. This morning's Standard has them looking at Huaxia Bank, along with Deutsche, SMFG, DBS, and SocGen. Tulips, anyone?
September 01, 2005
Can't teach an old dog new tricks?
Bank Mandiri held an investor meeting today to explain the 80% drop in 1H05 net income, as well as the appalling rise in gross NPLs from 7.1% of total loans at YE04 to 24.6% at mid-year. Management notes that BMRI's "current provisioning policy adheres to [Bank Indonesia] requirements," which is a big relief to us . This follows on the removal of Mandiri's senior management in May on allegations of corruption in lending. Although management can't seem to get borrowers to repay, they flag high loan growth as a positive.
Stock is down 14% (ex-currency) in last 10 sessions.
Deutsche calls this a "peak" for Mandiri's NPLs, and maintains a Hold after downgrading in June.
Posted by The Banker at 07:21 PM
* China approves Shanghai (Xintiandi) and Shenzhen (Nanshan) sub-branches for HK's BEA
* HSBC opens its Tianjin (Binhai New Area) branch today. Tianjin PR.
* Shinsei Bank will buy another 4.9% of consumer lender Aplus, at least for now. (official release)
* Japan's FSA is looking at operations of the Tokyo branches of KEB, Lloyds, Bank of China, and BONY. We know how they love furriners up there, so I'm sure it's all good.
As all of the major Chinese banks continue to choose partners and move towards the dance floor, ICBC has signed an MOU to sell a 10% stake in the bank to a consortium consisting of Goldman Sachs Private Equity, American Express, and Allianz. The FT hails the insertion of an "escape clause" in the deal which would let the consortium get out if ICBC's numbers are not as reported.....suspicious bastards!
ICBC also claims to have "completed its disposal" of bad assets after its most recent sale. We'd take the other side of that bet...
Posted by The Banker at 06:02 PM
Bulls in the China Shop
Temasek spreads its chips all over the table, adding a 10% (pre-ipo) stake in Bank of China to its existing portfolio of shares in China Construction Bank (initially 5.1%), China Minsheng Bank (4.6%), and of course its de-facto controlling stake in DBS, which has major operations in Hong Kong and 7 offices in the Mainland.
With this spree totalling at least $4.8bn so far, Temasek's banking team seems far from tapped out, and is still rumored in other FIG cicles to be a serious rival for the Carlyle/Prudential consortium in bidding for a major stake in China Pacific Insurance Group.
The WSJ notes:
...Temasek's style historically has been to shy away from the sort of hands-on corporate restructuring that, say, private-equity funds engage in to try to boost the value of their investments. And Temasek, with a staff of about 200, will be hard-pressed to transfer the sort of modern management know-how that a larger institution like Bank of America or HSBC Holdings PLC boasts.