Friday 29 Mar 2024
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This article first appeared in Forum, The Edge Malaysia Weekly on March 8, 2021 - March 14, 2021

The reality is, it is the shareholders who are being penalised for the blatant double dealing of some former executives in AmBank Group.

The RM2.83 billion bill that the bank has to bear as settlement for its role in the 1Malaysia Development Bhd (1MDB) fiasco will hit its profits directly. To shore up its balance sheet, AmBank will be raising new debt and has declared that it is unable to pay dividends in the current year of operations.

Its market capitalisation took a beating after it was requoted, but not to the extent that was expected. Nevertheless, shareholders are bearing the brunt of the institutional failure in AmBank. The market was caught out by the surprise announcement of the hefty penalty as AmBank had not given any indication and indeed had denied the possibility of this liability.

The current management team is not at fault for AmBank’s incurring the penalty, which came about owing to its role in helping fugitive Jho Low and his associates divert some RM600 million that should have been due to 1MDB. The money was from placing out 1MDB’s first bond issue of RM5 billion in May 2009.

On his first day as group CEO of AmBank (M) Bhd in November 2015, Datuk Sulaiman Mohd Tahir was served by Bank Negara Malaysia with a notice of a RM53.7 million fine. The penalty was due to the bank’s failure to raise a red flag when almost US$681 million was credited into the account of former prime minister, Datuk Seri Najib Tun Razak — a 2013 transaction that became public knowledge after its revelation by The Wall Street Journal and Sarawak Report in June 2015.

If anybody had thought that the bank’s brush with the authorities for its role in the 1MDB fiasco was over, they were proven wrong. After the RM2.83 billion settlement, it has become apparent that negotiations between the regulators and AmBank started in 2018/2019 during the Pakatan Harapan rule.

The shareholders of AmBank, Malaysia’s fifth largest lender by assets, are basically the same as in 2009. Australia and New Zealand Banking Group Ltd (ANZ) holds the largest block, followed by Tan Sri Azman Hashim.

However, virtually the entire management team is different now. Almost all the principal executives involved in the 2009 1MDB bond issuance have left the banking group.

The RM5 billion bond that AmBank raised was when 1MDB was known as the Terengganu Investment Authority (TIA). Low was an adviser with TIA.

The bulk of the 30-year government guaranteed debt papers with a coupon rate of 5.75% were sold at a steep discount to their face value to two firms located in Thailand and Singapore. On the same day, the two firms, both linked to Low, flipped the papers at a premium to local institutions. AmBank itself took RM500 million of the bonds.

In the process, RM600 million in profits that should have been due to 1MDB was pocketed by the two firms controlled by Low and also AmBank. AmBank facilitated the whole deal, for which it is paying dearly now.

AmBank is in a similar situation as US-based Goldman Sachs. The US financial giant has paid an estimated US$5.4 billion — of which US$2.5 billion came to the Malaysian government — as part of a global settlement for its failure to act on multiple red flags when it arranged 1MDB’s three bond issuances in 2012 and 2013.

On top of the cash settlement, the Goldman Sachs board in October last year decided to claw back or withhold as much as US$175 million from its senior management involved in the issuances of the three tranches of papers that amounted to US$6.5 billion.

Going by the Goldman Sachs example, shouldn’t AmBank also hold accountable all principal executives who were responsible for the wrongdoings in the RM5 billion bond issuance in May 2009?

In the case of Goldman Sachs, those who dealt directly with Low are facing criminal charges. Towards this end, former Goldman Sachs managing director for Southeast Asia, Tim Leissner, has pleaded guilty for his role in money laundering and bribery schemes while his colleague Roger Ng has claimed trial.

Andrea Vella, a Goldman Sachs partner in Hong Kong, has been barred from being involved in the industry altogether.

The compensation package of serving executives — namely current chief executive David Solomon, chief operating officer John Waldron and chief financial officer Stephen Scherr — were cut last year.

Executives who were involved in the decision making but had left the firm were not spared either. They include Solomon’s predecessor, Lloyd Blankfein; former Goldman No 2, Gary Cohn; former chief financial officer, David Viniar; former co-chief executive Michael Sherwood, and former vice-chairman Michael Evans.

It should be noted that the bonds were issued when Goldman was under the leadership of Blankfein and an apology to the Malaysian people was made by Solomon.

The clawbacks from the former executives were mostly in the form of the long-term incentive plan that was due to them.

Goldman Sachs’ move to penalise all involved in the bond issuances is essentially taking to task those collectively responsible for the institutional failure of the US financial giant.

Almost all of those involved in AmBank’s RM5 billion bond issuance are no longer with the bank but they are still around. Some of them are on boards of companies and some are even linked to government agencies.

Even outside AmBank, there are a few high profile-personalities who were well aware of what was happening in the bank and bribes paid out in Singapore but chose to close their eyes. The paper trail, if made public, would put many to shame.

More interestingly, it would give one an idea of how far Low’s tentacles reached within AmBank and Putrajaya as he dictated the running of 1MDB.

Corporate Malaysia does not have a good track record in clawing back compensation from principal executives responsible for mismanaging companies and causing millions in losses. From Sime Bank to Sime Darby and, most recently, FGV Holdings Bhd, none of the key officials and board members responsible for wrongdoings have had a clawback in their compensation.

AmBank should take a leaf out of Goldman Sachs’ book and make those responsible pay for their failings. It has caused shareholders of the bank a RM2.83 billion bill, which is no pocket change.


M Shanmugam is contributing editor at The Edge

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