AMMB hit by 1MDB settlement
KUALA LUMPUR: Analysts were surprised by AMMB Holdings Bhd’s (AMMB) announcement last Friday that it had reached a settlement with the Ministry of Finance (MOF) Malaysia in relations to its transaction involving 1Malaysia Development Bhd (1MDB).
The group is to pay a sum of RM2.83 billion (payment sum) as full and final settlement (global settlement) to all these historical matters. AmBank said will make a provision for the payment Sum in its fourth quarter of financial year 2021 (4QFY21).
“We were caught by surprise by this latest development,” opined analysts at MIDF Amanah Investment Bank Bhd (MIDF Research) yesterday. “We understand that all matters relating to the group and 1MDB have been settled before.
“Recall that the regulators had fined the group RM53.7 million in 2015 (which is a record amount then) and it had pledge to spend RM100 million in four years to improve its compliance and supervision issues.
“In that period, the group have strengthened itself after investing to revamp its system and process. Furthermore, we understand that the group have fully disclosed the transactions with the regulators. As such, we did not expect that the group will be punished again.”
Analysing AMMB’s balance sheet and capital position, MIDF Research opine that the group has enough buffers to fully absorb the payment sum as based on its financial statement as at end September 2020 (9MFY21), its CET1, Tier 1 and Total Capital ratios stood at 13.5, 13.5 and 16.6 per cent respectively.
Accounting for the RM2.83 billion, its CET1, Tier 1 and total capital ratios will decline to 10.9, 10.9 and 14 per cent respectively, which the research firm said was still far above the regulatory requirements.
“We estimate that the impact of the RM2.83 billion provisions will turn the group’s FY21 performance from profit to a loss,” MIDF Research continued. “Prior to the announcement, we are projecting a profit of RM1.28 billion for FY21.
“We estimate that the Payment Sum provision will cause the group to suffer loss of RM1.36 billion, ceteris peribus.
“In our opinion, it is a shame that the group has been hit with the payment sum as it had performed reasonably well despite the tough operating environment cause by the Covid-19 pandemic.
“Thus far, we do not expect the global settlement will have any negative impact to the Group’s operation especially in FY22 onwards.
“Putting aside the financial and operational impact of the global settlement, we believe that it will have a short term negative impact to investors’ sentiment on the group.
“We expect that its share price will be under pressure in the short term given that the news is very much a negative surprise in the market.”