Home' Trinidad and Tobago Guardian : March 13th 2014 Contents MARCH 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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On February 14, Finance Minister Larry Howai
issued a statement in which he said his ministry
had requested a detailed audit of the distribution
of shares in the First Citizens initial public
The minister directed that this audit be undertaken, he said,
because of questions that had been raised in the public sur-
rounding the fact that a senior executive of the bank had pur-
chased 659,588 First Citizens shares for $14.5 million.
According to Mr Howai s statement: "The Government s
public policy position on share ownership in privatisations
remains clear and transparent. The intention is that there
should be the widest possible distribution among the national
community. This is achieved through a well established allo-
The information about the $14.5 million acquisition by the
senior officer was published in the bank s 2013 annual report,
its first as a publicly-listed company. All listed companies are
required by law to list the shareholdings of their senior officers
and directors in their own companies. There is a requirement
that these listed companies must also disclose publicly when
their senior officers and directors trade in the shares of the
companies for which they work.
The logic of the requirement that the trading of shares by
insiders---which is how directors and senior officers are defined---
in their own companies must be disclosed to the public is that
that is material information that could influence the investment
decisions of the other shareholders of the company.
On Saturday, the Minister of Finance disclosed, after an
enquiry by me, that the accounting firm PricewaterhouseC-
oopers (PwC) had been hired by the ministry to conduct the
detailed audit of the allocation of shares in the IPO. Mr Howai
also told me by e-mail that he directed the broadening of the
original scope of the special auditors and that the audit fieldwork
is expected to be completed by the end of this week.
My immediate initial reaction to the news of PwC s appoint-
ment as special auditors of the share allocation process of the
First Citizens IPO was that this was problematic.
My instinct was that the hiring of PwC placed the firm in
a conflict of interest situation as PwC was the financial adviser
and consultant to the First Citizens IPO as well as being the
bank s auditor. While PwC was not involved in crafting, approv-
ing or executing the IPO allocation policy, the firm formed
part of the IPO steering committee, which was chaired by
Sharon Christopher, the bank s deputy managing director.
My questions about the retention of the accounting firm
Can PwC audit a process that they were an integral part
of in terms of providing advice and does the hiring of the firm
to conduct a special audit constitute a conflict of interest?
If the retention of PwC constitutes a conflict of interest,
would any of the conclusions arrived at by them be perceived
as being either credible or independent?
If PwC, as the auditor of the process, discovered that
there were issues with the IPO, would it red flag those issues,
given the deep involvement of PwC in providing consultancy
services to the IPO?
Mr Howai stated that the reason PwC was retained to
conduct the audit was because of the need for speed and
expediency, as "to get another auditor would have taken longer
as we would have had to go through a tender process and the
new auditors would now have to come up to speed on the
"The use of PwC, once we were clear that the conflict issue
was not a problem, was faster and more economical.
"We also recognised that the public would prefer not to
have to wait a couple of months for the outcome."
According to Mr Howai: "I take the point about PwC and
it was a matter that was considered but that it was felt that
the auditors watched the interest of all the stakeholders and
these queries were being raised by the shareholders who are
their employers. Remember the auditors are appointed by the
shareholders at the annual general meeting (AGM)."
This response is of course quite revealing.
The response reveals that:
PwC was retained (and will presumably be paid) by the
Ministry of Finance and not First Citizens
PwC was retained to do this special audit without having
to go through a tender process
The issue of a potential conflict was considered but set
aside because of the need for speed and because auditors are
mandated to seek the interest of all stakeholders
In the view of my informant, auditors are appointed by
shareholders at an AGM. (In a theoretical sense, of course,
this is true but in 100 per cent of the time, shareholders at
an AGM accept the recommendation of the company s directors
on the issue of the auditors. Also, since First Citizens has not
held an AGM since the divestment, it must be concluded that
Corporation Sole, which owned 98 per cent of First Citizens
before the divestment, hired PwC at the bank s last AGM.)
Now, in the period since he has been Minister of Finance,
Mr Howai has caused three audits to be conducted by his
ministry: into the operations of Caribbean Airlines, National
Quarries and into the PPP (public--private participation) con-
tracts issued by the Tobago House of Assembly.
As far as I can determine, in all three cases, there was a
similar need for a speedy resolution of the issues that had
been raised in the public. In all three cases, however, the audits
were conducted by the internal department in the Ministry
of Finance that is tasked to do such work.
In attempting to get to the bottom of this issue, I sent an
e-mail to PwC s senior T&T partner Colin Wharfe, seeking
Mr Wharfe responded: "PwC has been engaged to provide
services to the Ministry of Finance. First Citizens Bank Ltd
and its subsidiaries are audit clients of PwC. It is our policy
not to comment on matters pertaining to our clients. Our firm
at all times operates to the highest ethical, legal and professional
standards which are well established by professional oversight
bodies and traditional practice."
In a further response, Brian Hackett who heads PwC s advi-
sory practise denied that there had been a change in the firm s
mandate with regard to the audit.
Mr Hackett also said that there was "no conflict of interest
as you have contended as we were not involved in either
crafting, approval or execution of the allocation policy."
What do readers think?
Can PwC audit the IPO process that it advised and consulted
on?On the bank's disclosure
Yesterday, after an enquiry by this column, it became
apparent that most of the 659,588 shares acquired by
the senior officer of First Citizens were sold at a price of
$42.15 on January 14. On that day, according to the T&T
Stock Exchange's disclosure, 634,588 First Citizens
shares traded at $42.15 for a total consideration of
$26,747,884. This means that the stockbroker, who
remains unidentified, would have collected a one per
cent commission on the transaction, or $267,478, and
the seller would have received a cheque for
$26,480,406 minus 0.1 per cent for the stamp duty on
It also means that the seller would have taken home
a profit of close to $12 million, a return of 83 per cent,
for a five-month investment. I have no problem with
this if there are no issues of source of funds or multiple
applications (as defined in the First Citizens
Finally, First Citizens ought to have disclosed to the
T&T Stock Exchange within five days the fact that the
senior officer sold 96 per cent of the shares that he
acquired on January 14.
Under the "Report on trading by directors and senior
officers" Stock Exchange Rule 604 states: "Every listed
company shall, through its company secretary or other
relevant company official notify the exchange of
On Wednesday, after the close of trading, the T&T
Stock Exchange posted on its website its first
disclosure of trading in the bank's shares by First
Citizens directors and senior officers.
This means that it has taken 37 days for the
disclosure of the sale of the 634,588 shares by the First
Citizens senior officer to be made, when the rules
indicate that companies have five days to disclose.
One can conclude that the bank has breached rule
604. This breach must be rectified immediately.
Further, I am told that the Stock Exchange wrote to
First Citizens on February 19, enquiring as to whether
any trades by insiders in the bank's shares had taken
place. The bank responded on February 20.
The Stock Exchange should explain to the public why
it took them so long to post the information on the
trade by the First Citizens insider on its website.
Is PwC the best choice
for First Citizens audit?
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