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Who traded down African Bank's share value?

They real question to be asked with regards to the bailout for African Bank is: Who traded down the share value from March till now?

This is the issue raised by Fin24 user Mark Riddle, who wrote to ask "which majority shareholders knew of the pending collapse and sold off their shares at a profit and at the cost of the South African nation?"
 
Riddle says if this was the case, it would have been a highly illegal activity and requires an investigation by the SA Reserve Bank (Sarb).

"All proceeds should be returned to African Bank and then charges should be laid against those involved in criminal activities," said Riddle.

"Our country is at a turning point and this can be ill afforded."

Fin24 asked Kokkie Kooyman, global fund manager of Sanlam Investment Management Global, what he thinks of the Fin24 user's concerns.

Kooyman responds:
 
The Fin24 user has a good point.

The situation where two third party fund managers - in other words they manage money for clients and have to report their investment returns to those clients - were the largest shareholders of a bank - in this case African Bank - was an underlying fault line.

GT Ferreira (cofounder of Rand Consolidated Investments) once said: “In a crisis it’s the quality of shareholders that matter more than the quality of the company.”
 
From Coronation's report to clients it seems that they sold down their 22% holding in the company aggressively after management announced the rights issue and resignation of the CEO.

Bear in mind that prior to that a few local and international hedge funds were aggressively shorting the share - in other words, selling shares they didn’t own.
 
The question is: Was Coronation irresponsible in selling the shares and potentially causing the downward price spiral, forcing Sarb to step in?

What should have weighed the heaviest for them is difficult to judge after the event.

Coronation obviously decided they couldn’t follow their rights - it would have made the share a very big holding in their funds - and hence had to act in the best interest of their clients.

I don’t think they foresaw the effect their selling would have.
 
The hedge funds are different. They were quite happy to see the share price go to zero.

But that is capitalism.

With hindsight the following could have been done:

- Shareholders should have called in shares out on loan to the hedge funds. This would have forced them to buy the shares they sold that they didn’t own;

- The Sarb should have called Coronation and the Public Investment Corporation (PIC) in earlier and warned them of their responsibility as a major shareholder of a bank;

- In addition, the board should not have announced the rights issue and the CEO’s resignation without first having gotten the buy-in from major shareholders. And if the shareholders had refused, then gone to Sarb;

To announce a rights issue without a date, an as yet to be fixed maximum amount, without a leader and on top of that uncommitted shareholders, was suicide.

- Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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