'The investor is to blame'

Kanu H Doshi
CA & dean-finance,
Welingkar Institute

Should the GTB shareholder be protected? My emphatic answer is NO!

Equity is, perhaps, the only investment instrument which fluctuates in value most vigorously on a daily and often on hourly basis in the most visible way, thanks to vibrant stock markets all over the world and the coverage it gets in the entire media.

GTB investors should have realised that equity investment is risky investment.

Volumes have been written by investment gurus like Peter Lynch, Warren Buffett, John Templeton suggesting that "all common stocks are not common"; "common stocks are not for everyone, not even for all phases of same person's life"; "everyone may have brain power to make money in stocks, but not everyone has the stomach for it", "if you are prone to selling everything in a panic, stocks are not your cup of tea, stick to bonds".

Persons who invest in equity shares must realize that they are like persons playing with fire; they can hardly complain of burnt fingers. Investing in stocks without research is like playing stud poker and never looking at your cards.

Stock market behaviour is governed by human behavior and human behavior can never be predicted leading to fluctuations in prices of stocks based on greed, emotions, hopes, fantasies, fear, and dreams.

One needs not only cash but also courage to be an equity investor. If you don't know who you are, stock market is too expensive a place to find it out!

Investors make mistake in buying not good stocks at high prices but in buying bad stocks at low prices.

Pundits have advised the investors to sell your horse before he dies. The art of life is passing on losses. The most appropriate axiom for GTB investors is "it was a mistake that I bought that share. It was a bigger mistake that I did not sell it".

When GTB investors bought shares, the sub-broker and the main broker made money and two out of three making money in a single transaction is not a bad bargain.

For GTB investors, there were enough warning signals to know that all was not well with the company. Its main promoter and visible face of the company (Ramesh Gelli) was in the news all the time for quite some time for all the wrong reasons.

Sudden spurt in prices; proposal to push through merger with another good bank (UTI Bank) with the blessings of an obliging chairman of UTI which got aborted at the last minute, thanks to alert upright P J Nayak; strictures from RBI asking Gelli to step down from GTB's board; well-published reports of his deep involvement with scam tainted Ketan Parekh, huge exposure of GTB to Ketan's companies and many more were all there for anyone to see what was happening at the bank.

If after all these events, if an investor clung to that stock or bought it fresh, such an investor is too brave or too greedy looking for very high rewards at very high risk. Such persons need to remember only one simple rule of investing to help them - and that is "Investor protect thyself from thyself".

'Bad deal for the small fry'

Arun Kejriwal
Director, Kris

The Global Trust Bank share probably clocked its life-high traded volumes last week because small investors felt that here was a goldmine, a once-in-a-lifetime opportunity to make money. The obvious question is, why this?

Perhaps people were thinking of the precedent when the Nedungadi Bank was similarly taken over by Punjab National Bank. However, from a stake-holder's perspective, there is a price discovery when a share is quoted.

GTB's accounts are public knowledge, and irregularities over and above that were also known.

The involvement of the bank in the stock scam of 2001 is  also well known. The bank made a huge loss in 2003 and thereafter fresh infusion of capital was being talked about. Various names have been surfacing from time to time and the bank functioned normally.

IDBI has also run up huge NPAs and just because the largest stakeholder here is the Indian government, a fund of Rs 9,000 crore (Rs 90billion) is being created and IDBI Bank being merged.

Similarly, why couldn't GTB's merger with OBC be done after infusion of funds by the latter?

These days a lot of companies which have become unviable for myriad reasons are being restructured.

Also, there is a swap ratio or some value is given to the merged entity. With the infusion of funds certainly GTB could have been turned around.

In the fitness of things, the promoter of the bank with his associates should have been the persons whose assets should have been attached, not the poor shareholder who has borne with the company in its tough days.

From a shareholder's perspective the bank has been an efficient one and excellent as far as service to deposit holders or customers is concerned.

From this perspective and brand image, if small investors have bought the bank's shares, why should they be cheated?

There is a belief among GTB's investors that the bank had a brand image as far as service and customer satisfaction is concerned.

GTB had a reasonably large network. With capital infusion all the past wrongs could have been taken care of, provided the balance sheet remained intact.

Here that opportunity is not being given. Instead the balance sheets are being merged right away and the one chance that the investor had may be even five to ten years later also is being taken away. Clearly this is unfair and not best practice.

What should be done? Announce a date for taking on record the shareholders. Then de-list the share and keep the balance sheets separate. With fresh capital infusion and better management, the bank should turn around.

Once that has happened, merge the balance sheets and on the new date, with a reasonable swap ratio complete the process of merger.

The provider of capital or risk taker is also entitled to some protection and his views also be taken into account before passing this scheme.