Why are banks massively buying and selling treasury shares?

20-Jan-2018 Intellasia | Enternews.vn | 6:00 AM Print This Post

According to the latest information from Saigon Thuong Tin Joint Stock Commercial Bank (coded STB), the bank’s Board of directors have approved the sale of nearly 81.6 million treasury shares, equal to 4.33 percent of the chartered capital.

This decision is based on the bank’s post-merger restructuring plan which was approved by the State Bank. Information about the settlement of more than 19 trillion dong bad debt along with positive business results of Sacombank has brought about positive developments to STB share price in recent time.

The liquidity of STB shares has also fluctuated since the end of December, reaching 49.5 million units in some sessions (January 10). Closing the session on January 16, STB share was fixed at 14,950 dong per share. It is estimated that Sacombank may earn 1.220 trillion dong from the sale of treasury shares.

Since the beginning of December 2017, the major shareholder of Sacombank i.e. Eximbank has continuously sold out a large amount of STB shares, thereby reducing the number of shares held from more than 165.2 million units, equal to 9.16 percent stake to 97.5 million shares, equal to 5.41 percent of shares with voting right.

This move is expected to meet the regulation of Circular No.36/2014/TT-NHNN. Under this Circular, each commercial bank is only allowed to purchase and hold shares in no more than two other credit organisations, while holding less than five percent of stake with voting right of those other credit organisations.

Prior to Sacombank, some banks traded a large volume of Treasury shares such as VIB, Techcombank and TPBank. This massive trading was partly due to business cash flow, while partly to adjust ownership structure, raising better value for shares.

Specifically, in November 2017, Vietnam International Joint Stock Commercial Bank (VIB) completed the acquisition of six percent treasury shares at 22,500 dong per share. This bank spent more than 760 billion dong to acquire the shares from the group of shareholders related to Trinh Van Tuan, former Chair of VIB.

At the same time, Ngo Minh Hien, wife of the deputy general director Ho Van Long also successfully purchased nearly 1.4 million VIB shares. With the average transaction price of 22,789 dong per share, it is estimated that Hien spent more than 31 billion dong to carry out the transaction.

It can be seen that with the sharp increase in trading volume in November, VIB’s share price was pushed up to 24,900 dong per share on November 22, up more than 11 percent from the beginning of November. In January 2018, liquidity of VIB shares continued to surge, reaching the record of 685,000 units on January 8. At the end of the trading session on January 16, VIB shares touched 29,100 dong per share, up nearly 27 percent from the beginning of the year.

Or, Tien Phong Joint Stock Commercial Bank (TPBank) successfully sold three million treasury shares, earning 31.6 billion dong at the end of November. Currently, TPBank still has six million treasury shares. Besides, TPBank also plans to separately issue 87.6 million shares and list shares on Hochiminh City Stock Exchange (STC) in 2018. Currently, the transaction price of TPBank shares ranges between 27,000 per share and 31,200 dong per share.

In the middle of August 2017, Vietnam Technological and Commercial Joint Stock Bank (Techcombank) completed the acquisition of 172.4 million treasury shares out of the total of nearly 220 million shares offered for sale. The number of acquired shares accounted for about 19.1 percent of the bank’s chartered capital and was the entire shares of HSBC after about 10 years of investment. As a result, HSBC earned about 4.040 trillion dong.

Techcombank said the purpose of repurchasing shares is to adjust ownership scale and raise better value for shares while creating favourable conditions for Techcombank to have new resources.

Explaining why banks are busy purchasing treasury shares, many people said it is because of the strategy of each bank. That can be partly because of the business cash flow while partly to adjust ownership structure to enhance value for shares.

Typically, Sacombank’s decision to sell an entire of nearly 81.6 million treasury shares being owned, equal to 4.33 percent of the chartered capital, after STB share price reached the peak after more than two years, was considered as the profit taking activity of this bank. However, in a recent discussion, a leader of Sacombank said Duong Cong Minh, Chair of Sacombank is worrying that STB shares are heating up. Therefore, the bank’s decision to trade the entire treasury shares can be considered as a move to “cool down” STB shares.

For the share purchase, leaders of VIB said the purchase of treasury shares only temporarily decreases the outstanding equity in the short term while the bank will own more valuable assets i.e. their own shares.

An expert in the finance and banking sector further analysed that there are some reasons for banks to acquire their own shares. That can be because they have abundant money and temporarily have no demand for effective use. Therefore, they choose using the money to withdraw part of the shares in circulation to increase income value out of each share. However, some banks also buy in with the confidence that share prices will continue rising. However, if they have wrong calculation leading to buying at high prices then selling at low prices, then they will suffer from “doubled damages”.

 


Category: Finance, Vietnam

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