The government of Trinidad & Tobago, through the holding company for First Citizens Bank Group, launches a billion dollar Initial Public Offering (IPO) of shares to reduce its ownership in the bank. The issue opens today, Monday 15th July, and when completed will be listed on the T&T Stock Exchange. The offer of 48,495,665 shares, approximately 19.3 percent of the total shareholding of the bank, is expected to rake in $1.1 billion before expenses for the Government of Trinidad. The issue has an offer price of TT$22 per share for sale to the public. The proceeds will go to the holding company for Citizens and is expected to be paid over to the government.

Citizens, a banking and finance company, has total capital of $6 billion and total assets of more than $37 billion. When compared to the two other banks listed on the Trinidad Stock Exchange, Republic has capital of $7.94 billion and total assets of $55 billion while Scotia Bank has capital of $3.2 billion and total assets of $18 billion as of March this year.

First Citizens Brokerage & Advisory Services (a subsidiary of First Citizens Investment Services) is the Lead Broker for the Offer for Sale.

THE COMPANY | The First Citizens Group is a financial service organization headquartered in Trinidad & Tobago that offers a range of retail, corporate, capital markets, investment management, wealth management, asset management, trustee and brokerage services. The provision of corporate, commercial and retail loans, deposit and other retail services, including credit card accounts, internet, and telephone banking is conducted in Trinidad & Tobago via a network of 26 full service banking locations, one foreign exchange bureau, seven operations centres and 96 ATM machines. In Barbados, these services are provided via five branches, one lending centre and eight ATM locations. In Costa Rica, the provision of corporate loans is done via a centralised corporate banking team that covers both Costa Rica and the Central American region.

COMPANY HISTORY | First Citizens Bank was formed in March 1993 and acquired, The Trinidad Co-operative Bank, Worker’s Bank and National Commercial Bank. At that time, 62 percent of its loan portfolio was in arrears. In the 10 years to 2003, First Citizens Bank grew its profits to TTD233 million, doubled its asset base to TTD6.1 billion and had attained international credit ratings of BBB- and A-3 by S&P and Moody’s, respectively.

In 2009, First Citizens acquired Caribbean Money Market Brokers Limited, now First Citizens Investment Services Limited, a full service securities company with offices in Trinidad & Tobago, Barbados, St. Vincent and St. Lucia. In January 2012, a representative banking office was opened  in Costa Rica as the Bank’s first entrance into Central America and in August 2012, the Group continued its expansion with the acquisition of Butterfield Bank in Barbados, now called First Citizens Bank (Barbados) Limited.

BALANCE SHEET & PROFITS | At the end of March this year, the bank loaned out $13. 8 billion, an increase over the March 2012 of $11.2 billion. Customer deposits climbed faster to $26.7 billion versus $22.9 billion. Profit before tax grew to $388.7 million, $40 million or 11.5 percent over the $348.7 million earned for the corresponding period last year. Profit after tax amounted to $306.4 million. For the 2012 fiscal year, the bank earned profits of $446 million giving a return on equity of 8 percent and return on assets of 1.58 percent. Return on equity is around 11 percent for 2013.

Citizens is underperforming its two major competitors in a number of areas. Importantly, two critical measures tell the tale as to where the bank sits with its peers. Scotia Bank’s return on equity is 18 percent and return on assets 3 percent while Republic Bank is 14.6 percent return on equity and 2.25 percent return on assets. Republic sells at a PE of 15 and Scotia Bank at 22.5 times 2013 earnings and Ansa Merchant Bank has a PE of 19. The lower numbers of PE for Citizens suggest there is much room for the stock price to climb after the shares list with their PE at only 11.

The performance of the loan portfolio is a matter of concern. Data shows that there is not much impairment in the loan portfolio. However, it is noted that the level of loans that are past due increased markedly in 2012 over 2011 from $1.96 billion to $2.99 billion. “Corporate past due amounts” increased by $800 million, an indication that things may not be a sanguine as the profit figures are suggesting even as the provision for loans losses in the March six months period was much less than what was provided for in the comparable half-year results in 2012.

DIVIDEND POLICY | The dividend policy of the Issuer will be to distribute funds surplus to the operating capital and strategic requirements of the Group, as determined by the Directors, with an annual target dividend pay-out percentage range between 45 to 55 percent of net profit after tax.