KASB Corporation: A slow and painful dismemberment

Regulatory action against KASB Bank started decay of conglomerate

KARACHI:

The slow and painful dismemberment of KASB Corporation, once an indomitable financial powerhouse, will perhaps serve future generations as a text-book example of how institutions fail and conglomerates decay.

From a corporate behemoth that held as many as eight subsidiaries at the end of 2013, KASB Corporation exists today as only a shadow of its former self. Thanks to the regulatory action against one of its major subsidiaries, the group had already lost three-quarters by the end of last year.

Speaking to The Express Tribune, KASB Corporation Company Secretary Ziaul-Haq said the conglomerate owned only KASB Capital and KASB Funds at the end of 2014 with a shareholding of 78.2% and 46.1%, respectively.



A year ago, however, KASB Corporation had total assets amounting to Rs7.4 billion with direct and indirect shareholdings in eight subsidiaries, namely KASB Bank (83.6%), KASB Funds (90%), KASB Invest (99.6%), KASB Capital (100%), KASB Securities (77.8%), KASB Modaraba (51.6%), My Solutions Corporation (100%) and Structured Venture (100%).

Fortune stopped smiling on KASB Corporation last year when the State Bank of Pakistan (SBP) put KASB Bank under a moratorium to find a buyer that could inject liquidity into it and meet capital adequacy requirements.

This was followed by Bank Islami taking over KASB Bank in April at a ‘token nominal value’ of Rs1,000 only. With a network of 105 branches, KASB Bank’s deposits were more than Rs57 billion at the time.

Read: From the ashes: SECP lifts curbs on KASB Securities

According to the merger scheme, every shareholder of KASB Bank was entitled to receive compensation per share from Bank Islami. However, since the break-up value of KASB Bank determined by the independent valuator was negative, Bank Islami had to pay a token compensation of Rs1,000 for all 1.95 billion outstanding shares in proportion to the shareholders’ respective stakes.

In simple words, the merger of its subsidiary with another bank at the instructions of the apex regulator meant the entire direct and indirect shareholding of KASB Corporation in KASB Bank (83.6%) came to nought overnight.

But the misfortunes of KASB Corporation did not end with losing a whole commercial bank to another market player. One of the most successful companies indirectly owned by KASB Corporation, KASB Securities also became a victim of its parent company’s lack of capital adequacy.

KASB Corporation owned KASB Bank (83.6%) which, in turn, controlled 77.1% stake in KASB Securities, one of the most prominent brokerage houses of the country, at the end of 2014.

Without any fault of its own, KASB Securities ended up as a subsidiary of Bank Islami after the latter took over the parent company (KASB Bank) of the brokerage house for its lack of capital adequacy.

KASB Securities ran a profitable brokerage and investment banking business and posted a net profit of Rs108.6 million in 2014, which was up 33.4% from its earnings in the preceding year. KASB Securities also maintained affiliation with Bank of America-Merrill Lynch, but it was terminated following the regulatory action against its parent company last year.

Read: KASB Securities merges with Bank Islami

KASB Corporation released on July 8 its profit-and-loss statement for Jan-Dec 2014, which showed a net loss of Rs5.9 billion. The loss figure cannot be compared with the loss/profit it made in the preceding year because the company has recently changed the accounting year from June 30 to December 31.

Haq refused to state the amount of assets that KASB Corporation lost while it tried to survive one crisis after another. “I am not authorised to comment on that. You will have to wait for the release of our balance sheet in due course,” he said.

The writer is a staff correspondent

Published in The Express Tribune, July 13^th,  2015.

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