I’ve seen some posts about shareholding in the banks floating around social media the last 24 hours. I feel called to share some of my experience as a Chief Financial Officer of twelve years from two stints in listed companies.
The first point is that the top twenty shareholders list that a listed company must include in the back of its Annual Report very often actually tells you very little about the beneficial holders of shares.
Of slightly more use sometimes are the Substantial Shareholder notices that investors need to lodge once they own greater than 5% of a company, and when their shareholdings increase or decrease by 1% of the company’s total shares on issue. These notices usually include another layer of detail of who is behind the substantial holdings, however most of the time these notices too can still tell you very little about who really owns the shares.
Here’s an example of a Substantial Shareholder Notice for holdings in ANZ Bank lodged by NAB.
So you might ask why am I saying the information doesn’t mean much? One of the main reasons is the use of nominee companies. If you look at the share register of almost any listed company you will find particularly the large holdings dominated by nominee companies. If you look through the detail in a lot of the substantial shareholder notices, you’ll often see even more nominee companies.
Its different to a superannuation company who hold money on behalf of thousands of policy holders and then invests on behalf of them. Those kinds of investment companies are often users of nominee companies, but the nominee company’s purpose is strictly to obscure the real shareholders to preserve privacy.
Many times one investment house such as a Super Fund or Investment Management Company will decide to invest in a company and do it through multiple nominee companies.
Corporations Law and ASX Market Regulations require any beneficial holder whose holdings exceed 5% of the company’s shares to come out from behind the nominee companies and disclose their interest through the Substantial Shareholder Process and identify who the real controlling interest is, though it will usually still be a company name more often than an individual, and can still be hard to trace.
So when you look at a company’s share register and see National Nominees Limited the only thing that tells you is that National Nominees is earning a small fee for holding the shareholdings of someone else. It does not necessarily imply any real association to the National Bank.
The reality it is very hard for anyone, including ASIC (the regulator of securities and financial markets in Australia), to monitor shareholdings held through nominee companies, and especially if multiple layers of nominee companies are used. Most of the investment houses and nominees I dealt with took their responsibilities very seriously in lodging substantial holder notices, but nominee companies make it difficult for the company, ASX, or the regulator to monitor.
The prevalence of Nominee companies doesn’t suggest that every investor using them is a shadowy figure using them unscrupulously. My experience is that most users of nominee companies are major investors like Superannuation Funds, Mutual Funds, Investment Management Companies and sometimes companies that have surplus funds to park for a period. However the fact that their use is so very common makes it very easy for anyone wishing to obscure their trading and investments a little too easy.
The use of nominee companies is probably one of the biggest holes in corporate and investment market regulation where there is a far from transparent approach. So spending your time analysing the share register of your favourite listed company may not yield any useful information at all, and if you see ‘Nominee’ in the name know that it is telling you nothing about beneficial ownership.
Ura P Auckland
GAICD, FCPA, B.Bus Managing Director
Authegrity Pty Ltd
P.S. The shares in Authegrity Pty Ltd are 100% owned by me.