AmBank has enough capital to absorb settlement

PETALING JAYA: The close to RM3bil global settlement with the Malaysian government is expected to see AMMB Holdings Bhd (AmBank) slipping into the red for the current financial year ending March 31 (FY21), but analysts note that the banking group has continued to demonstrate resilience in its underlying business.

The settlement, as widely reported, is with regards to certain earlier former transactions of the bank that were linked to the now infamous financial scandal which happened at 1Malaysia Development Bhd (1MDB).

In its report, RHB Research noted that the RM2.83bil settlement should release AMMB from further liabilities.

“The company has enough capital and liquidity to absorb the impact and management has been in discussion with various stakeholders including major shareholders, clients, depositors and rating agencies and most of them are supportive, ” it said.

The research unit added that AMMB’s nine-month FY21 profit after tax and minority interest (Patami) was broadly in line with its (95%) and consensus (87%) pre-settlement forecasts.

In its note to clients, TA Securities’ research arm said the global settlement of RM2.83bil is expected to have a material impact on the earnings of the banking group for FY21.

“Management noted that a provision for RM2.83bil will be established in the fourth quarter, which will translate to a proforma loss of 93.89 sen per share.

“As such, we forecast the underlying net profit for FY21/22/23 to remain at RM1.08bil/RM1.27bil/RM1.51bil.

“Including the one-off impact from the global settlement, we foresee AmBank to report a FY21 net loss of around RM1.13bil, ” it said.

MIDF Research in its report said it is forecasting a bigger loss of RM1.53bil (from an earlier loss of RM1.36bil) for the lender’s FY21. “We are also adjusting our FY22/FY23 earnings forecast downward by 4.6%/6.2%.”

It said “it is a shame” that the group had been hit with the global settlement as it had navigated well the tough operating environment brought upon by the Covid-19 pandemic.

“Its strong income growth supported by improved net interest margin, robust loans and deposits growth had been a particular highlight. Furthermore, we expect to see further improvement in FY22 with the vaccine rollout and economic recovery, ” MIDF said.

“However, we cannot ignore the deep impact the global settlement will have on its FY21 earnings and to investor sentiment, ” MIDF said. It has a “trading sell” call on the stock and said that a re-rating catalyst is a faster-than-expected accretion of loss capital.

TA, meanwhile, also pointed out that despite the challenging operating environment, AmBank continued to demonstrate resilience in its underlying business as revenues remained healthy in the third quarter.

It said it believes that AmBank had adequate capital buffers to absorb the RM2.8bil settlement and estimated that the group would be able to raise its CET11 buffer organically within one to two years, the speed of which would depend on how fast the economy can recover.

At last look, the AmBank stock was traded at RM3.16 per share, valuing the entire banking group at some RM9.5bil.

The stock will resume trading today after being suspended in the last two trading days.

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