Crisis of Trading in Banks’ Shares

The Chairman of the Banks’ Union issued a statement during the working hours of the Stock exchange on June 10th 2020, warning that the banks will be unable to distribute cash dividends for the year 2020. This statement caused a sharp and general drop in prices especially in banks’ prices knowing that banks usually contribute by more than 61.8% to the market value of all listed companies as of the closing of June 9th 2020.  The drop (in prices) created a crisis and all relevant involved parties were blamed. There were controversial views concerning the error cause. In our opinion, the error was not in the substance of justice in non-distribution but in the statement’s text, timing, and subsequent procedures.

The substance was in the inability of beneficiary banks from the subsidy/support whether by reducing their capital strength requirements’ fenders, or by the need for deposits with easy terms by distributing profits that violate fair competition rules with banks that do not benefit from the support (subsidy). Besides, the achieved revenues are supposed to be used to restore the banks’ fenders’ soundness and as the future is full of unprecedented risks that call upon affected banks to build new fenders. Non-beneficiary banks control their decision. All the foregoing remains logical and within justice and hedging principles. What the banks achieve will reinforce their capital position and non-distribution will increase the shareholders’ rights. In other words, it is a postponed benefit for shareholders.

In our opinion, the error lies in the direction process. The statement was not sufficient enough to distinguish between the beneficiary and non-beneficiary banks. It seemed as if it deprived general assemblies of their decision. It was supposed to be phrased in a better and more professional manner. We believe that it was supposed to be phrased during the Central Bank’s leadership meeting with the banks’ CEOs on June 8th 2020, and it was supposed to be announced immediately after that day’s meeting to avoid its leakage. We also believe that the statement timing was supposed to be announced after the end and not during the Boursa trading. We also believe that coordination about the content and the timing was supposed to be after consultation with the CMA. Even with the error in issuing the statement, CMA was not supposed to remedy it by canceling all of Wednesday’s June 15th 2020 trading while it could have stopped trading simultaneously with the statement’s issuance and could have punished all traders who benefited from leaked information. The cancellation was unprecedented with an unjustifiable cost. 

Certainly, the error occurred with substantial costs. However, there is some exaggeration in assessing the costs and their impact on the prospects of upgrading the Boursa and the foreign turn out of investing therein. Most of the negative impact, if achieved, pertains to the major global crisis and its local repercussions.  It also relates to the probable financial performance of listed companies and not to a one-day event. Having said that, we believe that we should benefit from the errors especially those of phrasing and timing which should not reoccur. Coordination between CBK and CMA should be permanent as their functions are closely interrelated.