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Sunday, 24 September, 2006

United Western Bank Ltd.

Company Details: Kotak Research

Much has been said, written, talked about UWB but here are my two cents on the entire issue. talks about "affectionate people !". I was touched by their affection when I made 42% returns in less than a month "speculating" on the stock.

The RBI places UWB under moratorium till December 1 2006 since UWB's net non-performing assets were 5.66% (as compared to peer group figure of 1.97%).

In one of the statements, the RBI said, "During this (moratorium) period, RBI will consider various options, including amalgamation of United Western Bank with any other bank and finalize the plans in public interest with a view to ensure that the public deposits are protected...".

RBI further said, the depositors could withdraw upto Rs. 10,000 from any of the ATMs. Bank had 75 ATMs spread over Maharashtra. (Reminds me of few keywords: Denial, Scarcity, Authority, Social Proof, Negative Feedback Loop and last but not the least Lollapalooza)

2 Sep was a Saturday. There was a gap of almost two days before the markets would open again and trading would start. People got into a mad-rush and started thinking. The issue augmented when they thought a bit too much. There were scenes of people standing anxiously outside UWB ATMs and trying to withdraw cash. Many ATMs were reported to be out of cash. Things stared getting ugly when every news channel was talking of nothing but UWB and problems faced by the depositors and the shareholders. News channels invited specialists and experts in the studios for their opinions and what shareholders should do when the markets open on Monday. As expected, the experts opined that it should be sold off to cut on the loss that investors would make. None of the experts however pointed that moratorium was will December only and after that things can and shall return to normal.

UWB closed at 22.7 on 01-SEP-06. As expected it opened 13.2% down at 19.7. Went down to 5.25 (76% down from previous close). Finally it closed at 16.15 (down 48%). Before I rant further, I have a question. I thought there was a concept of circuit and it's generally 10 to 20% change. Why didn't UWB hit the lower circuit on 04-SEP-06?

All of a sudden there was some news that ICICI was having a board meeting to mull over the amalgamation of UWB. And then there were more people interested in buying it out - Canara Bank, Maharashtra Govt with HDFC, IDFC, Andhra Bank to name a few. Ideally this should have helped the stock price retain a decent level but it did not. And in the next few days, there were more organization of all kinds (public banks, private banks, NBFCs, Govt bodies, individual investors) who stated showing interest in UWB. Pradeep Bhavnani, One of the members of the National Stock Exchange actually picked up about 15% stake in the bank and said that he was doing this because, "(I) want to protect and bail out the shareholders and deposit holders".

The Climax
I have lost track of timelines but in the end, there were about 17 different parties in fray for the bank, each trying to out smart each other. RBI awarded the prized possession to IDBI. IDBI further said they would buy the outstanding shares of UWB @ 28. The price according to me is bound to reach 28 and might just go above it (with people over-expecting). The order book for UWB started getting skewed with all the buy orders and no sell orders.

I caught this news a bit late. It was trading at 5.25 for only a short amount of time (frankly you cannot expect to get the timing right). I bought it at 17.5. I discussed with few other people but everyone thought I was being rash and speculative. I agree it was speculative but if the returns are guaranteed with minimal or zero risk, would I still be called speculative ...? I sold my shares at 25.50. I could have waited for it to reach 28 but then I decided even if I leave some money on the table, in the end I would have gained. I did not like the look of things (call it sixth sense) but I decided I would sell.

And after everything IDBI can happily munch on their latest prize, depositors can now rest in peace and most importantly I can enjoy the 42.86% ROI (excluding taxes and brokerage) I made.


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