Twenty-one years after it stepped in to create First Citizens, the Central Bank is looking to exit the commercial bank–that has gone from strength to strength–by selling off its shareholding.
Just days after it confirmed that it was selling its stake in the Home Mortgage Bank, the Central Bank has disclosed that it is on the brink of disposing its entire stake of six million ordinary shares in First Citizens, the majority state-owned bank.
The stake, which is equal to about 2.39 per cent of the issued share capital of First Citizens, makes the Central Bank the fourth largest shareholder of First Citizens, following the Government with 77.2 per cent, the National Insurance Board (NIB) with 3.07 per cent and the Unit Trust Corporation (UTC) with 2.56 per cent.
Sources told the Business Guardian that the Central Bank is negotiating to sell the six million ordinary shares–as well as some 12.6 million preference shares that it owns–to the NIB. The Central Bank sold the NIB its 15 per cent in the Home Mortgage Bank (HMB), effective August 14, although both sides have refused to disclose the transaction price.
Sources said the Central Bank took a policy decision to sell its shareholding in the commercial bank in early 2013, well before the First Citizens initial public offering (IPO).
The sale of the shares was delayed as it was felt that the IPO would allow for the setting of a transparent, market-determined price for the shares. At Tuesday's closing price of $35.95 a share, the Central Bank's six million shares were worth close to $216 million.
As it did when it sold the stake in HMB, the Central Bank said it was selling its shares in First Citizens to end the conflict of interest involved in regulating an entity in which it owns shares.
The Central Bank said: "As at August 26, 2014, the Central Bank owns 12.6 million First Citizens preference shares, as well as six million First Citizens ordinary shares through its 100 per cent-owned subsidiary CB Services Ltd.
"In order to avoid perceived or actual conflict of interest, both as a regulator and a shareholder, the Central Bank took the decision to sell its shareholding in First Citizens and is finalising disposal of its shareholdings of ordinary and preference shares."
When the Central Bank sells its shares in First Citizens, it would be the first time since its establishment in 1993 that the Central Bank would not be a shareholder of the commercial bank.
It was the Central Bank, under the stewardship of Governor Ainsworth Harewood, that stepped in on September 12, 1993, intervening in the National Commercial Bank to avoid a run and merging it with Workers Bank and the Trinidad Co-operative Bank. The resulting merged entity was called First Citizens.
First Citizens was registered on March 9, 1993, with capital, and its objective was "to acquire and take over as a going concern" the business and assets of Workers Bank, National Commercial Bank and Trinidad Co-operative Bank.
According to a reference on First Citizens Web site: Few people believed that the new bank would survive. Fearing another collapse, depositors withdrew money and refused to do business with the new bank. By its first birthday, the bank was able to declare a consolidated profit and had reduced the loan portfolio in arrears to 33 per cent by August 1994 (it had been 62 per cent in September 1993)."
In its latest quarterly report, for the nine-month period ending June 30, 2014, First Citizens declared an after-tax profit of $477.6 million, which was an increase of three per cent over the corresponding period a year ago.
The Central Bank's involvement in First Citizens (and HMB) was partly though Section 36 (g) of the Central Bank Act, which empowers the Central Bank with the approval of the Minister of Finance, to acquire, hold and sell shares or other securities of any statutory body or company registered under the Companies Ordinance, for the purpose of promoting the development of a money or securities market in T&T or for financing the economic development of T&T.
In an initial response on Tuesday, the Central Bank had at first denied that it was a shareholder of First Citizens stating: "The Central Bank is not a shareholder in First Citizens."
It was then pointed out to the Central Bank that a company named CB Services is listed as being among the ten largest shareholders of First Citizens in its 2013 annual report at page 16. And that page 12 of the First Citizens prospectus (at note 3) states that CB Services is 100 per cent owned by the Central Bank of Trinidad and Tobago, while page 17 of the prospectus indicates that CB Services owns 6,000,000 ordinary shares in First Citizens, which is equal to 2.4 per cent of its issued share capital. That same page indicates that the Central Bank also owns 12,600,000 First Citizens Class B preference shares.
Who owns UTC?
Questions were also asked of the Central Bank about its equity participation in the Unit Trust Corporation (UTC).
In response to a question about whether the Central Bank was one of the original contributors of capital to UTC, the Central Bank responded: "Central Bank is not considered a shareholder of the UTC."
However, page 34 of the Central Bank's 2013 annual report, as at September 30, 2013, discloses: "The bank has investments in several related companies which are accounted for as available-for-sale investments.
"None of these equity investments, with the exception of the investment in the HMB and First Citizens Bank Ltd, have a quoted price in an active market and therefore their fair value cannot be reliably measured.
"The cost of these equity investments is therefore considered a reasonable approximation of fair value."
Note 6 of the Central Bank's 2013 consolidated financial statements, on page 40, lists five entities in which the Central Bank has equity investments. They are: UTC, Deposit Insurance Corporation, HMB (which was sold this month), First Citizens Bank and the T&T Inter-bank Payments System.
Note 6 makes it clear that the Central Bank's investment in UTC is being held at cost, which is $2.5 million and is unchanged from UTC's inception.
Note 13 of the UTC's 2013 annual report, at page 82, states: "Initial capital represents the capital subscribed by the initial contributors, in accordance with Section 17 of the act. The subscriptions were invested in the Growth and Income Fund. Initial capital at December 31, 2013, was $4.8 million (2012: $4.8 million; 2011: $4.8 million)."
If the Central Bank still holds its initial investment in the UTC, the Central Bank owns 52 per cent of UTC's initial capital. The initial capital contributors to the corporation are listed on page 137 of its 2013 annual report.
The contributors comprise: Central Bank, National Insurance Board, Citibank, First Citizens, RBC Royal Bank, Republic Bank, Scotiabank, ANSA Finance and Merchant Bank, Caribbean Finance Company, Clico Investment Bank, First Citizens Asset Management, General Finance Corporation, RBC Trust, RBC Merchant Bank, Fincor, Scotiatrust and 11 insurance companies.
Meanwhile, according to the Central Bank's 2013 annual report, the value of its investments in the HMB jumped from $33.36 million in 2012 to $110 million in 2013. And its investment in First Citizens moved from $18.6 million in 2012 (when the bank was unlisted) to $137 million as at September 30, 2013, (when it had been listed on the T&T Stock Exchange).