We do not apologize for returning once more to the problems unleashed by the National Savings Bank’s ill advised and ill-conceived deal to buy a stake in The Finance Company, the country’s oldest established finance company long quoted on the Colombo Stock Exchange.
The NSB made a belated statement last week returning to the subject after Dr. P.B. Jayasundera, the Secretary to the Treasury, intervened. Its apologia cut little ice with the public as it in effect bleated “we won’t do it again.’’ Even the framing of the statement left much to be desired as exemplified by its last paragraph reading (sic): “As a socially conscious and a responsible state-owned financial institution, we wish to give a strong pledge to the general public that we would continue to uphold all traditions of our bank and as done in the past continue our quest in having the depositors and other stakeholders total interest foremost in our minds in the future as well as the leader in developing you and the country.’’ Ugh!
Was the TFC deal socially conscious and responsible? If so why was it stopped? Is it responsible for an institution with a history going as far as 175 years to enter into a contract on the Colombo Stock Exchange and not pay for the shares it purchased? We have no doubt that this was on the basis of a direction that was made, for excellent reasons, and not a decision of the board of directors of the NSB. It is obviously a case of compliance with orders made by the authority who appointed the directors. Nevertheless, the buck sits on the lap of a bank which had to suffer the ignominy of having its role as a custodial bank suspended by the CSE. Hopefully the issues of the non-payment will be quickly sorted out this week unless some of the sellers cut up rough. Given the dust the whole business raised, it is likely that they will refund the money that went into their pockets due to the Sampath Bank inexplicably paying out funds it has not received for the transaction. Sampath too owes an explanation to its shareholders and constituents on why it did that. If such an explanation is not forthcoming, shareholders should demand it at the next annual general meeting of the bank.
One of our regular commentators, in a piece we run in this issue, has very appropriately described the whole sorry business as “monkeying’’ with the people’s money. After all, as the NSB itself claims on its website, seven out of 10 Lankans bank with it. Its history goes back to 1832 when the Governor, Sir Robert Horton, set up the Ceylon Savings Bank followed by the Post Office Savings Bank (POSB) in 1885 established due to the pioneering efforts of Sir Ponnambalam Ramanathan. Dr. N.M. Perera, as finance minister of the United Front Government of Prime Minister Sirima Bandaranaike, absorbed the POSB and Ceylon Savings Bank into the National Savings Bank which can rightly claim for itself the reputation of the country’s most trusted bank. The countrywide network of post offices was a powerful instrument of mobilization of the people’s savings with the NSB itself having now established an extensive branch network. Even the most humble in our land have sometime had a potha with the POSB and most families, as a matter of habit, opened accounts for their children. In fact lots of people don’t even know that long departed family members held accounts in the POSB/NSB as evidenced by the treasure trove of dormant accounts on which the bank sits. We would venture to guess that few banks in the world, if any, can claim the proportion of their country’s population banking with them that the NSB does.
It is a sad fact that succeeding political establishments, to varying degrees, have used state-owned institutions to bestow patronage appointments. Far too often the wrong people have been appointed to responsible positions. Even people like Dr. N.M. Perera have been guilty of this offence having once appointed a director to the Bank of Ceylon who subsequently went to jail. This worthy once wrote a cheque drawn on the Bank of Ceylon that bounced for lack of funds. A retired civil servant, among the best in his generation, then serving as the chairman of the bank sought the man’s resignation but the minister preferred to waive off the incident saying there had been occasion when his own cheques had been temporarily not honoured. But Dr. Perera was not a director of the bank on which such a cheque was drawn. This incident triggered the resignation of the bank’s chairman. This was the quality of the people this country was fortunate to have once upon a time.
As we said last week, it might have made business sense for a strong financial institution like the NSB to have taken control of a long established finance company like TFC despite its weak balance sheet. Its accumulated losses and negative net worth would have obviously depressed its share price making it a relatively cheap buy. Given its land bank and goodwill, that would have been a strategy that may well have been beneficial for both institutions. But any such transaction should have been clearly thought out and absolutely transparent. A very thorough due diligence should have been a sine qua non and the bank should have had a water-tight public justification for paying a premium as high as 60 percent over the prevailing market price for the acquisition. Obviously quantity would have not been possible without the premium. There should have been cognizance of the fact that the broker offering the deal was himself a seller; that three sellers were also directors of TFC and the whole scenario was very tricky to say the least. In all these matters, there should have been a consciousness that the right thing must not only be done but be seen to have been done. Sadly, on all these fronts the NSB is wide open. If the top management is not united, problems are compounded as it seems to have been in this case to everybody’s detriment.
Given that the price at which at least some of the major sellers have acquired the shares (Rs. 48) and the Rs. 50 price at which they were sold there was obviously no windfall profit. Given the holding cost, there would probably have been a loss and it is unlikely that there was any substantial kickback paid to anybody as is commonly perceived. But there has been a total lack of judgment and that fact alone should suggest that the honourable course would be for those concerned to place their resignations on the table even if they are not requested. That seems to us to be the best way out of a very difficult situation.