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Macquarie says significant challenges remain for Yes Bank, but 'risk isn't worth it'

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Global brokerage Macquarie believes that the Yes Bank's stock price decline poses a challenge to equity raising.

Macquarie says significant challenges remain for Yes Bank, but 'risk isn't worth it'
A lot of developments regarding the Yes Bank have surfaced this week from promoter Rana Kapoor's entire pledged stake being sold, to the group president Rajat Monga's resignation.
Earlier this week, the stock of the lender had fallen 30 percent on Monday, its biggest fall in a decade after one of the bank’s promoters sold 10 crore equity shares (3.92 percent of the bank's equity share capital) of the company.
Post the fall, the lender in a BSE filing, clarified that the bank's financial and operating metrics remain intrinsically sound and stable with liquidity position well in excess of regulatory requirements, leading their biggest ever single-day gain, rising nearly 34 percent on Thursday.
The private-sector bank also hosted a conference call to soothe investor concerns, where chief executive officer Ravneet Gill announced that the group president Rajat Monga has resigned from the company citing personal reasons.
Talking about employees selling shares, the management clarified in the concall that the employees had a lot of personal and financial commitments and hence had to sell shares in the market to meet their obligations, as a falling share price significantly weakens their financial position. Many of them have taken leveraged positions for exercising employee stock ownership plans (ESOPs).
Management added that the asset book has also declined and hence the need for deposits is low and that they are trying to make the balance sheet more granular and hence not renewing some wholesale deposits.
Management has been engaging with regulators as well as finance ministry officials and there is no pressure to merge, the management said, adding that these agencies want Yes Bank to be a strong and independent financial institution, and are fully supporting the bank.
Despite the clarifications, global brokerage Macquarie believes that the stock price decline poses a challenge to equity raising.
Maintaining their 'underperform' rating, Macquarie said, "We are not sure how Yes Bank can manage to raise money. Over the next 2-3 years, the bank needs money almost equal to its current market capitalisation. Such a raising would happen at well below book value, and hurt minority shareholders."
The brokerage said they are also not confident of management’s ability to assess the risk. The chief risk officer (CRO) hasn’t changed and the same person responsible for the recent asset quality debacle is heading risk management and has made comments on asset quality.
The other promoter, Madhu Kapur, still holds 7.5 percent of pledged shares. "There are too many uncertainties here and we don’t think the risk is worth it," the brokerage stated.
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