First Metro Asset Management Inc

A BIG BANG by Gus Cosio

7:00 pm  Friday  23 July 2010

What can I say when I see such a volume spike on a stock?  PNB saw value turnover exceeding half a billion pesos and was the biggest gainer on the day – a rise of 13%.  It only goes to show that a stock will try to approximate its real value when people realize its true worth.  Of course at this point, the question will be whether that value is a conservative 48, a reasonable 55, or an aggressive 60.  I am sure there will be different ideas and I will not argue the point.  My own  estimate has been a value around 48 even as early as this time last year.  I congratulate those who bought it then and had the staying power in this stock because rewards did not come easy.  The important thing is that it did and it came with a bang today.  I have always clung to the notion that if a good asset is very much under-priced, it will eventually attract buyers.

At this point, I can only speculate that there is going to be M&A activity beyond the consolidation of PNB with Allied.  I think that it will be worthwhile for some banks to do this.  My personal take is that a bank like UBP or SECB should at least have a look.  Acquiring PNB would allow it to leapfrog into the big league of Philippine banking.  I had mentioned in an earlier post the strength of the PNB banking franchise.  I did not even mention than in most provincial cities in the Philippines, the most prime of properties in the center of the poblacion is a PNB branch.  You can see that in cities such as Bacolod, Iloilo, San Fernando (La Union and Pampanga) Angeles, Cagayan de Oro, you name it.  Is it not surprising that PNB is ahead of everybody else in LGU finance?  They have long been positioned in the various regions.

If I were to guess, I think the best fit for a buyer would be UBP which have very strong core shareholders partnered with the Aboitizes – the SSS and Insular Life Insurance.  All of these guys have strong financial muscle and deep pockets.  Most of all, I think they understand the regions probably better than any of the bigger banks likely because they too are spread out in the regions.  Do not take my word for it though;  I am just making an educated guess.

What I really like about what is happening is that it will give life to the banking sector for some time to come.   Markets thrive on expectations and possible scenarios, and the permutations on how the M&A game will be played are very intriguing.  It may even be minuscule Bank of Commerce who would look to buy considering that they now don the San Miguel logo, and their parent had amassed a cash hoard lately.  Again, I am speculating.

If there is one thing that is dampening the market, it is the installation of a new trading system scheduled on Monday.  My broker friend, however, likens this to the “BIG Bang” in the London Stock Exchange in the 1980′s when the Footsie went into electronic trading from the open outcry method.  It even caused the older traders to cry because trading would not be same again.  Anyway, this new system will probably create greater liquidity in the market as the fluctuations are now much finer which is good for those who like to trade a lot.  As with any innovation, it scares a lot of people.  That was what happened when the automobile was invented.  Tell me, is anyone complaining now about owning a car?

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First Metro Asset Management Inc