Generous BCHB to Act but Not For Money

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Jun 07 2007
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In the latest twist reported by BusinessTimes, Bumiputra-Commerce Holdings Berhad (KLSE: COMMERZ, stock-code 1023) has finally awaken from its’ dream and is mulling legal action against Deloitte KassimChan, an international accounting firm, over its audit work on Southern Bank Bhd (SBB). It was also reported that BCHB (Bumiputra-Commerce Holdings Berhad) does not plan to take action against the old SBB’s board of directors since there is no evidence of fraud.
It was only less than a week ago when FinanceTwitter blogged on Southern Bank Overstated but It’s OK with COMMERZ which quoted BCHB as saying PricewaterhouseCoopers discovered “inappropriate accounting” for some transactions at Southern Bank for 2005 … Auditors has amended the accounts of Bumiputra-Commerce as of June 30, 2006, and no further corrections are required” when it responded to stock exchange.
So, what’s the justification for the latest move? According to the smart BCHB, this is due to the fact that PricewaterhouseCoopers has only highlighted “inappropriate accounting” treatment, not fraud. As such, the view is that the primary burden of accountability rests with the auditors. It is also understood that BCHB does not expect any material gain from taking any such action, as the bank has never relied on SBB’s 2005 accounts to price an offer it launched on SBB. To add more flowerish language, BCHB specified that it is pursuing this as a matter of principle and in the interest of helping to improve the country’s accounting standards, which is the key to any well-functioning capital market. Aren’t you touched by such a noble measure? At least I am.
This is probably the best corporate step ever taken in Malaysia financial market. Not to mention the generousity of BCHB for paying more to take over (hostile) Southern Bank back then. When you purchased a company especially a financial institution, you take assets’ value into consideration because there’s value associated with it. Same thing goes to liabilities and that’s why you’ve to present your balance sheet in your annual report to the authorities and the public to gauge your performance and financial strength. So, logically any Tom, Dick and FinanceTwitter will know that BCHB has actually overpay RM160 million (US$47 million) in the acquisition.
Unless BCHB chief executive officer Nazir Razak admits he just plucked the figure from the sky in his rush to buy over Southern Bank. The bad-decision made involved the shareholders’ money as well since the overstated RM160 million needs to be record (or hide) somewhere within the accounting sheets. No? Then I presume the RM160 million will just be erased permanently and disappear into the thin air and hopefully all the shareholders or investors will forget about the whole thing. Furthermore, it’s just US$47 million, a very small amount compare to the potential market capitalization losses should this issue be persuit further.

But the main point here is would such an action send a wrong signal to all the accounting firms out there? I wouldn’t mind inflating assets of my clients since no action will be taken which will cause monetary losses.
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