Antwerp-based asset manager Merit Capital will lose its Belgian brokerage licence, according to a judgement by Belgium’s Council of State published on 26 April. Merit Capital has been struggling for years with its governance model and profitability. Having its license revoked casts a cloud over its arrangement with Frankfurt-based Renell Bank, which announced in October it had agreed to acquire Merit subject to conditions.
Belgium’s Council of State has rejected the claim for suspension in case of extreme urgency of the nv Merit Capital against the decision to stop the suspension. The Council considered that “pleas raised by Merit Capital NV, alleging a violation of the duty to be heard, of the formal and substantive duty to state reasons and of the principle of proportionality” are not serious.
3,500 clients
Merit Capital, as a limited liability company, has 3,500 clients and 1.25 billion euro under management. Frankfurt-based Renell Bank on 30 September signed an agreement to acquire Merit but that deal, due to be completed per January 2022, at the time was subject to conditions and approval by Belgian supervisors. Merit and Renell have yet to respond to requests for comment by Investment Officer.
In the course of 2016, serious shortcomings were identified during inspections by the National Bank of Belgium. That led to an evolution in the shareholder structure that was approved in 2018, with the well-known historical shareholders, of liberal persuasion, selling a controlling stake of 51 per cent to DM Holdings. That is a Belgian vehicle of the British Duet group. However, after the evolution of the shareholder structure, “serious deficiencies” were again identified in 2020. Then there were also legal problems with the leveraged fund H2O in London. Merit Capital became the victim of false transactions.
‘Poor governance, malfunctioning internal controls’
In a letter, Belgium’s National Bank also criticised the existence of a parallel circuit for Duet-related private equity projects and informal repurchase agreements with Duet entities and the resulting conflicts of interest, the non-remediation of the shortcomings identified by the Belgium’s supervisor FSMA in its inspection report of 19 May 2020, poor governance and malfunctioning of the internal control bodies, the precarious financial situation of the listed company and uncertainties regarding the future cooperation with Merit Capital Global Investment Fund, the sicav whose intellectual property management it ensures.
In 2021, there was still an attempt to have the group taken over by the oil group Netoil, but this was not successful. In October last year, Germany’s Renell Bank agreed to acquire Renell.
Belgian regulator raised concerns
At the time, the FSMA also raised significant concerns about some of Merit Capital’s investment funds. For example, an amicable settlement was published on the FSMA’s website in 2016. The reason for the settlement is that Merit Capital NV published messages, advertisements and other documents on its new website regarding a public offering of investment funds without obtaining the prior approval of the FSMA and without complying with the legal requirements regarding content and form, the regulator said in a statement last year.
The legislation imposes various requirements on the content and form of advertisements for financial instruments so that consumers are properly and fully informed about these instruments. Moreover, such publicity may only be used after approval by the FSMA, which verifies whether all legal requirements have been met.
Numerous capital increases
A look at the company’s notarial deeds published in the Belgian Official Gazette shows that the company has had to carry out numerous capital increases in recent years. There were structural losses, which affected the equity.
To date, Investment Officer has not been able to reach any members of the senior management or Executive Committee to elaborate on the latest developments.
This article was originally published on InvestmentOfficer.be.