KUALA LUMPUR (Feb 26): AMMB Holdings Bhd (AmBank) has acknowledged that the global settlement of RM2.83 billion with the Ministry of Finance (MOF) in relation to the banking group's involvement in financial transactions done by 1Malaysia Development Bhd (1MDB) will make a dent in its earnings. However, it stressed that it has a sufficient buffer to absorb it.
The banking group's board revealed that AmBank will make a provision of RM2.83 billion in the final quarter of the group's financial year ending March 31, 2021 (FY21). This will translate into a pro forma loss of 93.89 sen per share.
Consequently, AmBank will not be proposing any final dividend for FY21.
"While this will have a material impact on the current year's profitability, there are adequate capital buffers to absorb this settlement without an immediate need to raise additional equity capital," said AmBank in a statement issued tonight in response to an announcement by MOF earlier today about the whopping global settlement.
As at Dec 31, 2020, the estimated pro forma impact on the group's Core Equity Tier 1 (CET1) and Total Capital Ratio (TCR) ratio is estimated to be a reduction from 13.52% to 11.01% and 16.39% to 13.88%, respectively, after the proposed provision for the global settlement, according to the statement.
To calm public concerns about the banking group's financials, AmBank highlighted that it remains highly liquid with Liquidity Coverage Ratio (LCR) of 155.8% and Net Stable Funding Ratio (NSFR) for all operating entities above 100%.
However, the group plans to raise Tier 2 debt capital to increase total capital available for ongoing working capital purposes, it added.
AmBank noted that the global settlement is not expected to have any effect on the issued share capital of AmBank group and substantial shareholders' shareholdings of the company.
To put things into perspective, the global settlement is equivalent to nearly 30% of the banking group's market capitalisation of RM9.51 billion. For FY20, AmBank posted a net profit of RM1.34 billion and RM1.5 billion for FY19.
AmBank, the sixth largest domestic bank in Malaysia in terms of asset size, stressed that the group has since strengthened and enhanced its processes under the current respective entities' boards and management teams.
"However, against this background, it is in the best interest of the AMMB Group to reach a settlement on all of these historical matters so that the AMMB Group may focus fully on its current businesses," it said.
"We have been rebuilding the banking group through our new management team under the leadership of our board, strengthening our governance structures as well as enhancing the robustness of our processes.
"As part of the global settlement, we will continue as we have for the past five years, to strengthen our fundamentals, particularly in terms of corporate governance by continuing to improve our systems and processes to strengthen due diligence. We are therefore committed to putting these historical matters behind us and move forward to deliver value to all shareholders, stakeholders and customers," AmBank added.
In July 2020, the Malaysian government entered into a similar agreement with US investment bank Goldman Sachs for a settlement amounting to RM15.8 billion (US$3.9 billion).
AmBank group, and its former customer relationship manager Joanna Yu Ging Ping are also facing a suit from former prime minister Datuk Seri Najib Razak over the alleged negligence and breach of duty in the handling of his personal bank accounts, which millions of money linked to 1MDB had flowed in and out of, cited in his SRC International Sdn Bhd trial.
But on Sept 28 last year, Kuala Lumpur High Court Justice Datuk Khadijah Idris struck out Najib's suit on the grounds that it was an abuse of the court process as the former premier had filed it to bolster his defence in the SRC case.
The suit will now be heard at the Court of Appeal on June 25, following Najib's appeal over its dismissal.