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Shakespeare’s Hamlet was not a businessman. Were he speaking today, however, his existential question may have been more concerned with whether to buy, or not to buy shares.
The recent trouble with First Citizens has pushed share purchasing as a means of investment on to the frontburner of the news menu. It was a scandal to rival any soap opera, starring an executive who allegedly used his position as an employee to buy 659,588 shares in the undersubscribed employee bucket and a relative at a brokerage company who may have facilitated the purchase.
So far, the fallout has been the dismissal of the executive, the resignation of the T&T Stock Exchange chairman and independent senator, Subhas Ramkhelawan, and calls for more heads to roll at the highest levels of the bank.
Since the IPO scandal broke, the purchase and sale of the block of shares has drawn comment from several prominent individuals in society—from business experts to advocates of financial reform—calling into question the integrity of First Citizens Bank and its shares as investment instruments. Even the representative union at the bank, the Banking, Insurance and General Workers Union, has had its say and claims what it said was misinterpreted.
The banks’ workers have remained silent through all of this. According to the bank’s 2013 annual report, the bank has 1,800 members of staff and, according to one report in a daily newspaper, 1073 of them purchased shares. This has been confirmed by one senior official at the bank who told the Sunday BG, that close to 1,100 workers bought shares. That represents almost 60 per cent of First Citizens workers. The workers’ allotment of shares was some 7.8 per cent of the 48,495,665 shares issued in the IPO.
The bank has a corporate communications department, authorised to speak on its behalf. There are also executives who can speak for the bank in their own right and the union, which represents workers can also, by virtue of the fact, represent employees’ views.
The Sunday BG, however, went directly to some workers to get their views and opinions. The question: why 60 per cent of the bank’s employees purchased shares and 40 per cent did not, particularly since employees were able to access them at a special price of $19.80, with an interest-free loan to be paid off over a five-year period, to do so if necessary.
Workers unwilling to speak
The Sunday BG soon found out few employees were prepared to speak. As it was later revealed by one of the employees interviewed, instructions not to talk to media about any aspect of the IPO affair were issued directly by the bank’s corporate communications department. Attempts by Sunday BG to interview several employees outside bank branches across the country were steadily rebuffed with most employees hurrying away as soon as they realised they were talking to media.
A few would volunteer some information, though, but in front of the bank their responses were curt and general, limited to yes or no and why they bought the shares. Those who could be convinced to meet or speak away from the bank revealed just how complex the issue of employees buying shares really was.
Not all about making profit
One employee caught outside a branch was a 23-year-old junior officer who purchased 500 shares using the interest-free loan facility. “I thought it was a good investment,” she said simply. This was her first stock purchase and she invested because she believed she had little to lose. “I’m confident that the bank is doing well.” But she refused to answer additional questions about the IPO purchase.
Meanwhile, another first-time purchaser, who answered questions away from his branch via telephone, said he purchased his 365 shares also because he thought it was a good investment. He, however, did not use the loan facility. “If I had taken a loan, I could have invested more. But some people prefer to use their cash in hand as opposed to taking a loan in order to make an investment even if it was an interest-free loan.”
A 28-year-old junior officer, who has 7 and 1/2 years of service at the bank, said several other employees also refused to take the loan facility and chose to invest their own money. When asked why he did this, he explained: “To me, the financial performance of the bank was strong and is strong. It was a risk, of course. Investment in stocks is a risk. But I was willing to take that risk for the small number of shares that I invested.”
One glimpse into an alternate reason employees would have turned down the loan facility was given by another junior staffer. At 32, she was older than the other interviewees, and as she described herself “more cautious.” She told the Sunday BG that she wanted to see how the share was performing over a period of time before investing. She said she would have had to take a loan to buy hers and said the shares would be used as collateral.
Essentially this means that for the loan period, she would not be able to sell the shares if they decreased in value or if anything went wrong. She said a number of employees that she knew began to sell their shares as the IPO scandal unfolded and said they were able to do this because they used their own money. Using the loan facility took away this option. As she observed: “You cannot make the decision another member of the public would be able to. That freedom was taken away from staff and I don’t take too lightly to that.”
Another female staffer who did not purchase shares, this one a 54-year-old, who was employed at Workers Bank—one of the failed three banks which government brought together to form First Citizens—added that the loan facility was not anything special. “Even if the interest rate is preferential, you still don’t get the preferential treatment. That aspect of staff getting loans is not unique to First Citizens. All banks do it. They put you under a microscope and they take long, dilly-dally. It’s as though you are begging.”
Closer to retirement than any of the other employees, this employee sounded bitter, at times rancorous because, according to her, both the union and the bank were playing games with workers especially with issues surrounding her own pension. She said this was why she opted out of the purchase and described not buying shares in the company as “an act of protest.”
“Maybe I let my heart rule my head and I lost out on making some money. Sometimes money is not all. To me, I have a moral stance, it might be stupid. I made the decision because I was not getting any redress with the matter.” She believed there would be enough future business opportunities for her to invest in to not be overly troubled by missing out on the bank’s IPO.
The 28-year-old bank employee who bought his shares with his own money understands why his colleague might feel this way. The bank and BIGWU have not settled the 2012-2014 collective agreement yet and are moving into another period. He said a number of them would have liked to use their back pay to buy shares.
“That was the comment I got from my colleagues. If negotiations were settled, they would have been able to invest more and it would have been a better environment in that they would have looked at the bank more favourably. And so they may have put a little more faith into the bank and invested more.”
Whether they purchased shares or not, all of the employees interviewed in depth had a high level of confidence in their institution and its ability to perform. The 28-year-old said the share price peaked in the early forties and, even with the IPO scandal, only dropped to the mid-thirties. He felt certain that, with time, the shares would recover and will begin to appreciate in value again.
However, the 32-year-old who adopted the wait-and-see approach said it is critical that the bank take a firm hand with the issue. According to her, since the scandal broke, the bank has not been doing enough damage control and that this could eventually begin to affect the price of the bank’s share negatively. “Peter Permell was all over the newspapers. The newspapers were flooded with what he was saying. We had influential people in newspapers saying things like, ‘should we take our money out of this bank?’
“And when you have people doing things like that, people see these things in the public and we do not have an illiterate public, especially people who invest their money. Every day you face people coming into the bank asking questions saying that ‘I am reading this, I am reading that.’ I have had people coming to the bank asking to take out their money. Somebody needs to say, this is what we saw and encountered, we fixed it and let’s move on from here.”
All of those interviewed said the revelation of Phillip Rahaman’s stock purchase and the surrounding accusations were as much of a surprise to them as they were to the public.
The 28-year-old who invested in shares said the first clues that something might be amiss came when the annual report was published and some employees commented on the number of shares that were bought by Mr Rahaman. However, the older staffer who did not purchase shares said based on her experience with the stock market she thought something was wrong when the price of the shares almost immediately went up to $43.00.
“What I was sceptical about, just the initial share price was good but when I saw how it was going up, I know that in certain countries people buy up large amounts of shares to drive the price up, and then they sell it and make a profit. When they start selling it, the price goes down. And I was a little wary about that.”
Given what the workers have had to say about the situation, their motivations to purchase, or not to, show that they even though they only represent 7.8 per cent of the total number of shares issued, they cannot be written off. The ratio: 60 per cent versus 40 per cent reflect something deeper.
BIGWU president on shares
The representative union BIGWU is not accepting responsibility for the sizeable portion of workers who did not buy shares. According to the union president, the proportion of those who bought to those who did not was closer to 50-50. Speaking with the Sunday BG, BIGWU president, Vincent Cabrera termed the accusation by the bank’s executive that the union advised workers to not purchase shares as “silly”.
He said he wanted to clarify the union’s position given some of the criticisms that were levelled by the bank’s board and executive management that it was the union’s stance on the share purchase and its advice to workers that caused so many of the shares allocated to workers to remain on the market in the first place, creating the opportunity for malfeasance.
“We cannot tell people to buy shares or not to buy shares. It is an open market. What we did tell them was that if they did purchase shares, they would be assisting in privatising the bank.” At last year’s IPO, the State sold just under 20 per cent of its stake in First Citizens and retains a 77-per cent stake in the bank. Cabrera said that as a trade union, it could not allow situations that created a disadvantage to workers.
On the issue of the workers being “disadvantaged,” an employee who purchased 1,000 shares at the IPO at $19.80 a share, would have spent $19,800. At Friday’s close of trading on the local stock market, those 1,000 shares would have been worth $38,500—a tax-free gain of 94.4 per cent.
In addition, the employee would have received $1.66 in dividends, comprising $1.09 paid out in January from the 2013 annual results and $0.57 that will be paid out this month from the six-months between October 1, 2013 and March 31, 2014. The dividend plus the capital gains (both of which are tax free in T&T) means that the employee’s total investment would have more than doubled in eight months—from $19,800 in September to $40,160 in May.