Banking Daim-inance : Malaysia's Great Bank Robbery

Malaysia's bank and corporate recovery program is shaping up into oneof the greatest heists in modern history. None would call itout-and-out nationalization. But freeMalaysia views it as nothingshort of outright crony-ization.By now the evidence is clear, Prime Minister Mahathir Mohamad and hissidekick, two-time Finance Minister Tun Daim Zainuddin, must have beenplotting for nearly a year or longer to acquire a huge chunk ofMalaysia's financial system for themselves and their cronies. And theyhave used billions of our tax ringgit to pay for it.Here's how:The creation in 1998 of Pengurusan Danaharta Nasional, DanamodalNasional and Bank Negara's Credit Debt Restructuring Committee wasgenerally greeted as a smart, first step in reviving the nation'seconomy. Cleansing the system of bad debt and deadbeat companies wouldhelp pave the way for solid and sustained economic expansion in thefuture. That, at least, was the official rationale.And that probably would have remained the agencies' primary aim, iftheir mission hadn't been subverted by Daim when he returned to theFinance Ministry in September, thus combining his leadership rein overthe National Economic Action Council with his stranglehold overMalaysia's public purse. Since then, the recovery program has been apublic deception of the highest order.Selective actions by Danaharta and DanamodalBacked by public funds, Danaharta, Danamodal and the CDRC becamecuriously selective about which bad loans were bought out orrestructured - and under what terms they were acquired. It's clear nowthat these decisions were made with an eye toward late July, when thecentral bank announced its plans for the massive consolidation ofMalaysia's financial system. The shaping of the six ÜberBanks wasunderway.Far more important, the deception was engineered to guarantee thatDaim himself would walk away with more than RM200 billion in bankingassets -- or 40% of the nation's total viable bank loans.And that's not nearly all of it. Daim, as well as the other chosenbeneficiaries of the consolidation, would be handed a bundle of otherking-making advantages, including the forfeited real estate heeffectively would control; the acquired brain power, technology andfinancial-service innovations that would come under his purview; themassive amount of valuable information from corporate borrowers thathe would inherit to expand his corporate empire and drub hiscompetitors; and the resulting flush financial hub from which he wouldfinance his empire's next expansion splurge.In short, it's as if the top half dozen or so banks in America mergedinto one, with Federal Reserve Board Chairman Alan Greenspan the keyshareholder and executive chairman, and then retained the President ofthe United States as a highly paid consultant and head of the newÜberBank's executive compensation committee. How stacked is this deck?Of the RM31.4 billion in bad loans acquired by Danaharta, 85% of thetotal -- nearly nine out of every ten ringgit laid out by the agencyfor bad-loan buyouts -- were channeled to a mere four institutions.And guess which ones they were? (Bear in mind that these bailoutpackages were mostly delivered in the first six months of this year,before the banking consolidation plan was announced.)Sime Bank was relieved of RM12 billion; Bank Bumiputra, RM9.5 billion;MBf Finance, RM4 billion; Oriental Bank, RM1 billion; and CommerceAsset-Holdings' Bank of Commerce, about RM800 million. Now, guesswhere these banks are headed in the pending ÜberBank merger?No prizes for guessing correctlyIf you guessed Daim's and his associates' two designated bankingdominions, you guessed right. The first would be "Multi-Über-Purpose,"whose prospective financial components are Multi-Purpose Bank,RHB-Sime Bank, PhileoAllied Bank, Oriental Bank, Sabah Bank and Daim'sown puny International Bank Malaysia. In addition, four financecompanies, including MBf Finance, and two merchant banks, includingBBMB Merchant Bank, would be injected into Multi-Über-Purpose.No wonder Daim was so eager to relieve former Multi-Purpose chieftainDatuk T.K. Lim of his controlling stake in the conglomerate. Besides,for years Daim has been after Multi-Purpose, especially its financialassets.The second would be the reconstituted Bumiputra-Commerce Group, fromthe combination of Bank Bumiputra Malaysia and CommerceAsset-Holdings. Daim, through his crony-controlled New Straits TimesPress and Renong, holds a combined 37% stake in Commerce Asset. Alsoto be absorbed into this expanded banking group are Quek Leng Chan'sHong Leong Bank and Hong Leong Finance, as well as Credit Corporationof Malaysia and CIMB merchant bank.With the benefit of hindsight on Daim's plan to take over the bankingsystem, it's even easier to understand the sweetheart deal he cookedup to clear the way for Commerce Asset to take over Bank Bumi, which,together with Hong Leong, will give the enlarged banking group atantalizing ethnic and geographic spread throughout all sectors of theMalaysian financial system. For starters, Commerce Asset acquired BankBumi for only about RM1.5 billion, a steep discount to the RM2.46billion book value reported last September. And since Danaharta andthe other agencies assumed all of Bank Bumi's currently acknowledgedbad loans, the problem-plagued bank's books are cleaner than at anytime in that institution's history.In case Bank Bumi's books aren't squeaky clean, however, Danaharta haspledged to buy all new bad loans at full face value until well intothe year 2001. Given the bank's checkered history, perhaps CommerceAsset would be crazy to acquire Bank Bumi without such a guarantee.Still, an effective two-year government guarantee to cover all badcredit that may arise is highly unusual and a strong indication thatBank Bumi intends to pursue its old, money-losing ways for some time,at least into and beyond the next general election.Moreover, Danaharta has agreed to assume Bank Bumi's so-called"credit-impaired assets," again at full face value. This unusualassortment of bank assets relates to loans which currently are beingserviced … but are held by companies and individuals who are or may bein financial distress. Analysts estimate that Danaharta will shell outan additional RM10 billion to assume Bank Bumi's remainingnon-performing and credit-impaired loans.The banking steal, uh, deal of the centuryIn short, Daim and his boys are getting the banking deal of thecentury with their government-sponsored takeovers of the enlargedMulti-Purpose and Bumiputra-Commerce banks. While the otherfinancially troubled banks absorbed an average discount of 57% on thenon-performing loans they sold to Danaharta and others, Sime Bank andBank Bumi get to unload a massive RM21.5 billion in bad loans to thegovernment at full face value. (By government, of course, we meanMalaysian taxpayers.) In other words, taxpayers already have overpaidby as much as RM12 billion because these two banks mysteriouslyavoided the same 57% haircut that the other institutions had toendure. And much more is sure to follow.Danaharta was generous, but Danamodal and Khazanah weren't skinflintseither. Of the RM8.3 billion shelled out by them to help revivedebt-battered banks and corporations, RM5 billion, or 60%, went tojust four institutions. And we bet you can guess who they are: MBfFinance, for RM1.6 billion; Bank Bumi, RM1.1 billion; RHB-Sime, RM1.5billion; and Oriental, RM850 million.No doubt about it, the pending mega-bank merger will radically alterMalaysia's financial landscape. And it will be designated ÜberBanksMulti-Purpose and Commerce Asset that will be changing it the most.Currently, the two banks hold a combined share of only 6% of bankingassets; after the merger, their combined share will balloon to morethan 40%.Growth through asset appropriationToday, Multi-Purpose controls the relatively piddling sum of RM7billion in bank assets; after the inclusion of the 11 otherinstitutions, Daim's ÜberBank will control an astounding RM113 billionin assets, or 24% of the national total.Not far behind, Commerce Asset will climb to the third largest bankinggroup in the country, quadrupling its current market share of 5% toalmost 20% and securing control of RM95 billion in bank assets.In contrast, the nation's vibrant mid-sized Chinese banks will be cutto a lone vestigial remnant, Southern Bank, which will hold only 4% ofthe sector's assets. And, there remains considerable doubt about whowill really control Southern Bank after the merger. After all,longtime Daim kaki Tan Sri Osman S. Cassim represents majorshareholder Killinghall (Malaysia) Bhd's non-Chinese-held share of thebank.The bank merger scheme even effectively sidelines Public Bank, whichwill fall from being one of the leading financial institutions to thesecond to last. Even combining Public Bank's 9% share with SouthernBank's 4% doesn't equal the share of the next-largest ÜberBank,Perwira Affin, which will hold 15% of the system's assets. There canbe no doubt that there will be little room for and no quarter given toindependent Malaysian banking institutions in Daim's Brave New BankingWorld.There you have it, fellow suckers. What Daim's bank scam lacks insubtlety, it makes up for in absolute audacity. We - all Malaysiantaxpayers - have made it possible for Dr. M, Daim and their cohorts topull off the greatest bank heist in our nation's history. That's whatwe get for keeping them in office for 18 years.http://freemalaysia.com/bank_daiminance.htm