Later this month, the Malta Association of Small Shareholders (MASS) will be holding a public conference entitled “Dividends, Bonus Shares and Retained Earnings”. The conference will be held, as usual, on the last Tuesday of the month on 26 February.

Many shareholders query whether a bonus share is really a bonus or depresses the share price. At the last Bank of Valletta annual general meeting, the Chair explained clearly that advantages of a bonus share issue are: (1) that the shareholders next time round will get a dividend on a larger number of shares, and (2) bonus share issues help the bank expand so that it can do larger deals and do business with larger companies.

A bonus share issue simply entails a transfer of retained earnings. These retained earnings represent accumulated profits of the bank that were not distributed to shareholders over the years and which are to be issued as share capital of the bank. In BOV’s case, this meant a transfer of €30 million from retained earnings to issued share capital.

Therefore, such a transfer does not involve a change in the ‘value’ of the bank represented by shareholders’ funds. However, I am sure that further elucidation on this matter will be provided at the MASS conference at the Radisson Resort in St Julian’s on 26 February.

Bank of Valletta, as well as a few other listed companies have undertaken this exercise for a number of years. In the case of Bank of Valletta, the issued share capital increased from €83.1 million to €300 million, also in part due to the capitalisation of €33.3 million in early 2009 to increase the nominal value per share from €0.75 to €1.

This exercise is an important development in the eyes of international credit rating agencies and in fact the Fitch rating agency recently confirmed Bank of Valletta’s rating. It is good to drive home the message to shareholders that the amount of issued share capital is an important signal of the strength of a bank especially now as there is increasing regulatory pressure on the required capital levels to be held by financial institutions because of the Basel requirements.

Another advantage of the distribution of more shares to shareholders is that it improves the liquidity aspect of an equity. The local market is often criticised as being a shallow one and consequently investors at times find it difficult to trade in a security. However, the other side of the argument here is that this market does not seem to involve heavy players so in a way local shareholders know where they stand.

The increasing number of BOV shares in public hands has made the equity more liquid as is evident from trading statistics over recent years. Another factor is the large free float compared to other companies and the wide shareholder base with more than 18,000 shareholders as mentioned by the Bank of Valletta’s Board Secretary in the latest Corporate Social Responsibility publication.

Investor education remains a key objective of the Malta Association of Small Shareholders and it calls upon public listed companies and other industry stakeholders to assist it in educating investors for the continued development of the local financial services industry.

Shareholders can join MASS by writing to the Malta Association of Small Shareholders (MASS), c/o 46, Saint Bosco, Borg Street. Fleur de Lys, Birkirkara or by sending an email to [email protected].

Saviour Buttigieg

RABAT