T&T Stock Exchange fowls up FCB report

We carried the following report on the poor level of reporting of First Citizen Bank (FCB) of Trinidad and Tobago when we castigated management their poor reporting to their shareholders, with the release of the March quarterly results and wondered why the Trinidad and Tobago Stock Exchange accepts such substandard reporting.
We stated that afterall, information is what creates good markets. When various parties in markets get relevant information at once, then they have a far better idea where to price a security.
First Citizens contacted IC Insider and informed us that they did in fact submit the correct information to the Trinidad and Tobago Stock Exchange, unfortunately, the exchange copied the unconsolidated report and posted it on their website. The report gave wrong information on the banks operation but it remained posted until our article came to the attention to the bank and the Financial Securities Commission in that country the bank advised us. The bank indicated that the large increase in other income reported below represents a divided paid by a subsidiary to the group company.
Stock exchange staff must understand that they are handling price sensitive information that can result in huge gains or losses for some, accordingly, special care need to be taken, to ensure that information they release to the public reflect accurately what has happened. The TTSE did not take care in positing the report and to think that the error remained there for days is alarming.
First Citizens actual Q2 results. The bank in fact made profit of $148 million for the quarter, slightly higher than the $146 million made in 2014 and $326 million in the six months, an increase of $5 million, from revenues of $290 million for the quarter and $578 million for the half year, in net interest income, with other income coming in at $150 million for the quarter and $294 million for the six months. Earnings per share is $1.30 for the six months, just ahead of the $1.28 in 2014. The most encouraging feature for the bank is the continued growth in loans which moved from $11.57 billion to $12.9 billion. Lending is the area that increased profits are to come from if there is growth of good quality loans. Shareholders’ equity stands at $6.4 billion at March and customers’ deposits at $26.7 billion. With lending translating hovering around half of the deposits, the bank will be unable to optimize the profits as the spread between loans and deposits are usually higher than on money market instruments.
The following is the rest of the report which was carried. It is puzzling that FCB latest interim report states that it is prepared in accordance with IAS 34 interim financial reporting but on examination it shows that it has not fully comply and it falls down badly in two critical areas.
Here is and extract of IAS 34 says – “If the financial statements are condensed, they should include, at a minimum, each of the headings and sub-totals included in the most recent annual financial statements and the explanatory notes required by IAS 34. Additional line-items or notes should be included if their omission would make the interim financial information misleading.”
“The explanatory notes required are designed to provide an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the last annual reporting date. Examples of other disclosures required [IAS 34.16A] changes in accounting policies explanation of any seasonality or cyclicality of interim operations unusual items affecting assets, liabilities, equity, net income or cash flows.”

Earnings per share is one such line item for listed companies in their audited financial statements, accordingly, any compliance with the standard would see earnings per share calculation shown in the interim report. Certainly the big bump up in income is of an unusual nature that requires some explanation. Regardless of the accounting standards prudent management would certainly want their shareholders to understand what is happening in their company.
First Citizens Bank posted a big jump in earnings for the March quarter of this year, but there is not even one line giving an indication as to what resulted in the huge jump. Is it one off, is it sustainable nobody seems to know or worse nobody seems to care, not the company not the stock exchange, not the Financial Services Commission? Just nothing for investors to digest. The income statement shows a line item for net interest income of $211 million for the quarter but an item 3 times that size is listed as other income. What insensitivity? As John McEnroe once screamed at a tennis referee, you can’t be serious. As a result of this big jump in other income, more than twice the $298 million they raked in in the same period in 2014, and more than they hauled in in all of the 2014 fiscal year of $537 million the amount is just $5 million more than the net income for the quarter after tax of $630 million. In 2014 for the similar quart profit was $292 million.
For the six months the bank is reporting profit of $728 million up from $378 million but one would be led to believe the numbers are suspect for thy seem too good to be true and begs the question as to their sustainability, bearing in mind the flat first quarter numbers. It is only in looking at the segment results that one can glean a bit of where the increased profits are coming form that does not show what caused the big income gain. The company’s net income for banking was virtually flat compared to 2014 for the six months but treasury and investment banking saw a big leap in net income to $661 million from $289 million, the source of the increased profit.
The problems don’t stop there. Investors in the stock market need to know the earnings per share even more than the absolute profit in order to easily value the shares, a search throughout the document reveal no such item but the situation get even worse than that the company has not even paid investors the courtesy of including in the document, the total issued shares so they can compute it easily.
Exchange web site, the bank has 251,353,562 shares issued, putting the earnings for the six months at $2.50.
Citizens had had several missteps since going public. First they miscalculated the closing date incorrectly, as it fell on a public holiday and it was put back which was not needed as it was heavily oversubscribed and could have closed ahead of time, secondly the date for listing was pushed back thus tying up investors’ money longer than was stipulated in the prospectus. The company also suffered some uncomfortable moments when it was discovered that a manger bought up large amounts of shares beyond his or her allocation in the scarce IPO issue.
The stock traded at $35.80 on Friday but has hardly moved since the results were published an indication that investment don’t see the big jump in profit as sustainable.