Home' Trinidad and Tobago Guardian : May 23rd 2013 Contents SEPTEMBER 2013 • WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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In the six-month period from October 1, 2012 to March
31, 2013, the State-owned First Citizens recorded an
operating profit of $383.8 million, which was a 12 per
cent increase compared with the comparable period in
In its unaudited interim financial statement for the first half
of its 2013 financial year, the company, which is due to sell
shares to the investing public for the first time next month,
recorded total net income of $825.8 million, which was up by
about 8 per cent. Its impairment for loan losses reduced sharply
to $19.9 million from $56.4 million but operating expenses
increased by 17 per cent to $422 million from $360.5 million,
which must be partly as a result of the significant wage increase
that employees of the banking group received late last year.
The balance sheet of First Citizens looks strong with total
assets growing by about 15 per cent to $36 billion from $31.3
billion as at March 2012. At a time when many pundits are
predicting that the estimate of 2013 growth by the current
Central Bank Governor seems optimistic, it is noteworthy that
the bank's loans to customers increased by 30 per cent to $11.2
billion from $8.6 billion a year ago. It is also very interesting
that the bank has managed to attract 16 per cent more in cus-
tomers deposits and other funding instruments with those
rising to $26.6 billion from $22.8 billion.
In fact, everything about the company's financials seem
rosy---except for the $36.3 million decline in its after-tax profit,
which went from $342.8 million in the first six months of
2012 to $306.4 million in 2013. That's because the amount
of taxes the banking group paid in the first six months of 2013
was $82.3 million, which was more than 13 times the $5.8
million that it paid a year earlier.
The increase in the amount of taxes that First Citizens pays
is due to the fact that last year it decided to re-assess its tax
strategy in relation to the pursuit of the tax benefits to be
derived from swap instruments used to manage its foreign
exchange exposure arising on US dollar bonds sold by the
First Citizens had a tax charge of $267.7 million for the 2012
financial year compared with a $29.6 million tax credit in
This is what First Citizens chief financial officer Shiva Manraj
told me when we first reported the tax decision: "We reassessed
the tax strategy leading to a change in the tax estimates, in
consultation with our tax advisors and after careful evaluation
of all relevant factors.
"This change in estimate, amounting to an additional tax
charge of $128.3M, was recognised in the income statement
for the year ended 30 September 2012 in accordance with the
relevant International Financial Reporting Standards."
As a result of the change in the strategy, the bank declared
an after tax profit of $446.4 million for its 2012 financial year,
which was down from the $718.2 million it reported in 2011.
While the decision by First Citizens to stop using the tax
efficient methods that it employed previously may not appeal
to all investors, it is my view that this decision is to the bank's
credit. This statement is being written as I watch Apple CEO
Tim Cook being grilled by members of a Senate sub-committee
in the US on allegations that technology giant dodged US$9
billion in taxes last year.
It also comes in the context of the international debate
about whether multi-national companies like Apple, Google,
Starbucks and General Electric are taking advantage of cross-
border tax loopholes to limit the amount of taxes they pay
to the countries they operate in and the countries they are
Depending on the price (and the PE multiple) that First Cit-
izens is offered at, it seems like a very interesting addition to
long-term investment portfolios.
But what about CMMB?
In the year ended September 30, 2008, First Citizens reported
that its assets totaled $15.8 billion and its customers' deposits
amounted to $9.4 billion. A year later, the bank's assets jumped
by 75 per cent to $27.8 billion and its deposits increased by
62.6 per cent to $15.3 billion.
The 75 per cent increase in assets is all the more remarkable
given the fact that the period October 2008 to September
2009 was the year in which the T&T economy declined by
3.3 per cent.
The extent to which CMMB contributed to the sharp growth
of the assets and deposits of First Citizens ought to be revealed
by the bank executives during their promotion of the IPO.
According to the 2009 annual report of the banking group,
First Citizens assumed control of Caribbean Money Market
Brokers group, effective February 2, 2009.
Although assumption of control took place just days after
the signing of the January 30, 2009 Memorandum of Under-
standing between the Government and CL Financial, First
Citizens acquired 55 per cent of CMMB's equity shares via a
share purchase agreement with CL Financial dated May 22,
2009. Forty-five per cent of CMMB was acquired by way of
a vesting order dated June 2009 issued by former Finance
Minister Karen Tesheira, which transferred Clico Investment
Bank's shareholding in CMMB to the First Citizens group.
Is there a reason why the bank's control of CMMB was
CMMB, which some commentators argued was bankrupt
when it was acquired by First Citizens, contributed revenues
of $369.9 million and net profits of $91.9 million to the State-
owned banking group in the eight months from February 2
to September 30, 2009.
For $369.9 million in revenues and $91.9 million in net
profit, First Citizens paid a total of exactly $1. To assess CMMB's
contribution to the First Citizens bottomline, the company's
profit after tax increased by $73.7 million to $537.2 million at
the end of September 2009 compared with the same period
Were it not for CMMB, would First Citizens have experienced
a decline in profits in the 2009 financial year?
Former CL Financial executive, Michael Carballo, in his
witness statement to the Commission of Enquiry into the col-
lapse of the CL Financial empire, said:
"In the last quarter of 2008, the long-term bonds
invested in by CMMB decreased in value in line with the
overall prices of securities on the international markets and
from a mark-to-market perspective, CMMB would have tem-
porarility declined in value.
"This was of serious concern to the CMMB board of directors,
especially in light of short-term deposits such as Caribbean
Airlines that were seeking immediate return of funds and this
created a tight liquidity situation and concern by early January
"Subsequent to the signing of the MoU, I was made aware
that First Citizen's Bank Ltd would be interested in acquiring
the assets of CMMB and meetings were held with LEX
Caribbean, FCB and Ram Ramesh followed by the drafting of
the share purchase agreement, whereby a provisional purchase
price of $1 was set for the purchase of CMMB, but subject
to a valuation to be performed.
"I was subsequently informed by Alison Lewis (the permanent
secretary in the Ministry of Finance) that Michael Toney of
MCT and Associates was appointed to perform a valuation,
and despite numerous request I was never provided with a
copy of the valuation and was always concerned about the
$1 price eventually placed on the assets of CMMB.
"I would really be interested in seeing a current valuation
of the assets of CMMB that had temporarily fallen in value
following the interntional crisis in late 2008."
Like Mr Carballo, I too would be very interested in seeing
the valuation of CMMB done by Michael Toney, that upstand-
ingly professional accountant.
If in 2009, when it was acquired, CMMB had a value of
more than the $1 that First Citizens paid for it, should that
not be accounted for in the reckoning that is going on now
with regard to the amount of money that CL Financial owes
One hopes that the valuation is not being surpressed.
One also wonders why the Sir Anthony Colman Commission
into the collapse of CL Financial ignored CMMB and the many
issues swirling around it.
Will First Citizens be a good buy?
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