Time to rescue system from stags
THE latest row that has exploded among banks over the mayhem caused by new equity issues in Hong Kong is just one more symptom of the problems that plague flotations.
Time after time the whole banking system has creaked under the sheer weight of money that has surged through it in search of instant profits from flotations.
Small wonder, given the number of times that over-subscriptions have run into three figures and first-day dealings have seen handsome premiums.
It looks like easy money, and all it takes to get it is more money.
A grim example of just how much cash is marshalled to support the stags came earlier this week with the result of the Legend Holdings issue.
Oversubscribed 400 times, and with a single punter applying for 11 times the total amount of available stock, it summed up the chaos that regularly infects the initial public offering market.
Criticisms of Hong Kong flotations have been heard for decades, and the obvious targets are the advising banks. Their pricing policies seem to centre on generating maximum demand, rather than the maximum amount of capital for the client.
It could be argued that there is no half-way house in Hong Kong, and that too finely priced an issue will be left with the underwriters, but that doesn't seem to be a problem elsewhere in the world. Is Hong Kong really that different? The current row should not trigger further restrictions on the activities of the smaller banks. Hong Kong banks already work in a cosy atmosphere, designed to prevent bloody competition over deposits and loans threatening stability.
Away from this mainstream business, the smaller banks need to be able to play their role in providing maximum choice to consumers.
The solution to the new-issue debacles lies not in shutting them out, but in a fundamental examination of the present system, a tightening of application procedures and in increasing the demands clients make of merchant banks.