[Malaysia] Hong Leong Bank Rapped

The New Straits Times, Kuala Lumpur
8 June 2005

PM raps Hong Leong Bank
by Sheridan Mahavera

Datuk Seri Abdullah Ahmad Badawi today expressed unhappiness with Hong Leong Bank Berhad for "unfairly" placing well-managed and cash-rich companies on a list of stocks for which it would not provide margin financing.

The Prime Minister, displeased by the move by one of the country’s top anchor banks, said the bank had been "strongly advised against doing something like this (in future)".

Bank Negara will meet with Hong Leong officials on this matter soon.

Abdullah, who is also Finance Minister, also said the Government would not stand by and watch the market being manipulated at the expense of the small man.

The credit squeeze on margin financing by financial institutions has been said to be one of the reasons for the panicky dumping of lower-line shares on Bursa Malaysia lately.

Abdullah said some of the companies on the Hong Leong list were considered strong. He understood that banks have to be prudent, "but having this kind of list when the other banks do not see the necessity of having such a list, I find it unacceptable ... Hong Leong should have been more responsible".

He was speaking to reporters after officiating the National Conference on Challenges of the Globalisation Era by Union Network International at Istana Hotel here.

It is understood that Abdullah called for a meeting with Second Finance Minister Tan Sri Nor Mohamed Yakcop, Securities Commission chairman Tan Sri Md Nor Yusof and KLSE chief executive Yusli Mohamed Yusoff last Monday and expressed his concerns over stock manipulation and unhealthy practices which had caused suffering to investors and the small man.

Officials said Abdullah instructed regulators to take all necessary action against manipulators to reflect the true fundamentals of a growing economy.

Hong Leong, controlled by reclusive tycoon Tan Sri Quek Leng Chan, circulated a list of non-marginable stocks for the last three weeks. The list kept being expanded, from 145 companies and instruments to 454 instruments listed on Bursa Malaysia by last Thursday.

The wide circulation of the list coincided with the stocks named being sold down on the exchange, causing widespread consternation among investors, stockbrokers, punters and regulators.

Following that, four of the anchor banks — Maybank Berhad, Public Bank, Bumiputra Commerce and Hong Leong and investment bank CIMB Berhad — called a news conference late Thursday night to assure the market they were not indiscriminately pulling lines of financing for stocks. The market has shown some broad-based recovery over the last
three trading days following the banks’ assurance.

(Banks do not lend money to finance purchases of non-marginable stocks, which are normally deemed to be of unsound companies that are not well-managed or are trading at unrealistically high levels not commensurate with their fundamentals.

Investors who purchase such stocks before they are declared un-marginable will then have to either replace these stocks with marginable stocks or top up the difference with cash. In the event they are unable to do either, the bank or financial institution can force-sell the shares.)

Analysts interviewed by Business Times on Thursday questioned the rationale for the presence of certain stocks on Hong Leong’s list, as these companies were considered sound and well-managed.

Among those listed were Hyundai-Sime Darby Bhd, Allianz, and cash-rich companies such as Berjaya Sports Toto Bhd, banking group RHB, oil services firm SapuraCrest Bhd and hospital operator Pantai Holdings Bhd.

They said the number of stocks on the list was "excessive", and that it would further dampen overall market sentiment.

Abdullah today warned against manipulation of stocks on Bursa Malaysia. He said he would leave it to regulators to consider how to curb the problem of manipulation. "We cannot allow manipulation of the market. It affects people," he said.