Yes Bank: bye bye Shareholders!
Many people bought Yes bank. Especially recently at 300, then 200, then 100, then 80…40, 30. Now they will realize that averaging has one huge advantage. Their average loss per share has come down dramatically. Yes of course, they have lost all the money. Swaha.
Some of us knew that the Yes Bank balance sheet was shit. Like how most of us knew that ILFS is a joke. A cruel one perhaps, but a joke. RP was ………………….(no words can describe him).
The shareholders of Yes Bank can kiss their money good bye, safely and soundly. Sbi shareholders and Lic policy holders, thanks a ton. Now shareholders and policy holders have very nicely shared budget.
Shareholders will get NOTHING, depositors will be protected FULLY. Great job done. If the government keeps wondering why people do not invest in equity, the answer is here. Both shareholders and deposit holders took risk. A bank like YES had to pay a higher rate of interest to attract deposits. So a SBI paid 8% interest and YES had to pay 9-10% for the same tenor. Similarly say SBI equity share was available at a HIGHER PE than YES bank. Which means the YES bank deposit holder and shareholder were willing to pay a higher price for the higher risk that they were taking.
In a crisis situation the shareholder loses everything. The equity share has been valued at Rs. 1 for all practical purposes. Just shows that “capital adequacy” was not there. So the capital being wiped out is now being acknowledged and recognized. That is all. However the deposit holder who again did it for greed is not being punished.
So once more the government reiterates – do not take risk in EQUITY. Take risk in fixed deposits – we will underwrite the FD.
Why did the government not do this in case of Punjab and Maharashtra Co-operative bank? and say “All fixed deposits upto Rs. 10L per PAN holder will be taken over by SBI” OR SOMETHING like that? Well it is difficult to answer. In YES bank who is being helped?
The bank? no, no.
The fixed deposit holder, the savings bank account holder, the RD holder, the ‘bechara’ employee (who also took up a job here for greed), the vendors (who were part of the corruption)…etc. Will the CBI step in? Will the old promoter and his team be prosecuted? I hope so. I am not sure.
When such disaster strikes I go back to my BFSI portfolio, and go back to bed, knowing that Hdfc, Cholamandalam, Sundaram, Kotak, …………..well I am in safe hands.
I hope I can say the same about Equitas also 40 years hence…ok I hope my daughter is able to say so in 2060. I need to find younger Parekhs, Vellayan, Uday, ……….for her!!
Krish
You would see all sympathy towards deposit holders just because of 50K moratorium for 1 month. Perhaps you might see protests from deposit holders from now on. Where as share value might drop to 1 or 2 wiping out all investors wealth but hardly anyone bothers including regulators. In crisis times, it pays to be deposit holder rather than stock investor.
Mohit
harsh judgement by you sir. The silver lining here is SBI becoming a shareholder/pumping funds. Govt is doing it because Yes Bank would have collapsed otherwise/ not enough funds. So in short-term yes, shareholders are at a grand notional loss.
But in the long-term (and I mean 10year horizon), it is not impossible to see it as a comeback story. Why else does SBI come into picture?
Deepak
“need to find younger Parekhs, Vellayan, Uday, …”
The bigger question is are we creating those next generation leaders? We had very asymmetrical talent flow into IT last two decades, where will you go search? US ?UK?
neil
How good is RBL bank?
Pradeep
Mohit,
You are right, in 10 years time Yes Bank will grow to such levels that it will be in a position to bail out those banks that are in trouble.
Meanwhile RBI and govt must stop forcing banks to reduce loan rates, how else can SBI fund Yes Bank bail out?
I hope govt directs SBI loanees to pay 0.5% extra towards Bank bail-out fund.