Financial Times

ComBank: Harry loses round one
Minority shareholders, bank employees unions and others opposing attempts by tycoon Harry Jayawardena to expand his business empire and extend his control of the banking sector claimed victory at last week’s extraordinary general meeting held to oust Mahendra Amarasuriya as Commercial Bank chairman.

However, this is only the first round of the battle and it is unlikely Jayawardena would give up so easily, especially since the Central Bank has not yet ruled that he has violated the banking regulations.

The meeting, where emotions ran high, ended up being postponed without a decision on Amarasuriya’s future. Minority shareholders and bank employees were jubilant that they had managed to postpone the meeting by filibustering and raising procedural objections.

The EGM turned noisy when the management and majority shareholders tried to go ahead with it despite the objections of minority shareholders who insisted that it was illegal as adequate notice had not been given about the change of venue. They also objected to the appointment of the pro-tem chairman by the bank’s board of directors and maintained that he must be appointed by shareholders.

The turn of events bore all the hallmarks of a fast-paced drama – with court decisions being given just hours before the crucial EGM or even while it was being held, and unions rushing from one court to another, breathlessly chasing a favourable ruling, and finally, the riotous end to the meeting.

The meeting broke up as news reached it of the Appeal Court ruling restricting Harry Jayawardena’s voting strength in Commercial Bank to 10 percent. Despite his control of a much bigger stake in the most profitable bank in the country, the Appeal Court order said these parties could not use their voting rights in excess of 10 percent. There are some minority shareholders who maintain that the EGM should have gone ahead after the Appeal Court ruling in which case the motion to remove Amarasuriya would likely have been defeated.

To some extent, the battle for control of Commercial Bank has the appearance of pitting the old established business elite whom Amarasuriya represents, against the new entrepreneurial group personified by Jayawardena. By a strange turn of events, Jayawardena’s emergence as a powerful businessman, most recently propelled partly by funds generated by the Distilleries cash cow (given the penchant for drinking alcohol among Sri Lankans, one of the highest per capita consumers of hard liquor in the world), has the appearance of repeating the rise of the mercantilist elite who gained dominance of the island’s business sector in the latter half of British rule largely through money generated by arrack renting before using that wealth to diversify into other areas and gain prominence in the professions.

Harry Jayawardena may have been thwarted this time in his bid to extend his control over a greater part of the banking sector but most probably he would continue efforts to keep even indirect control.

There are arguments for and against consolidation in the banking sector as well as consolidation in the manner that Harry Jayawardena appears to be seeking. His bid for dominance has raised concerns about fair play and competition.

There are concerns that giving commercial interests control over banks could create problems for depositors and borrowers alike. This would give such business interests access to classified information on market rivals through their control of banks. Such leaks of sensitive information about competitors’ financials and borrowings could put them at a disadvantage.

Despite the furore created by the takeover attempt the Central Bank is refusing to get stampeded into a decision – leading to concerns that it is being too cautious or even that it tacitly approves Jayawardena’s attempt to control three banks.

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