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The first results from FBN Holdings (1)

By Akintola Omigbodun

FBN Holdings Plc, FBNH, is the post-transformation name of First Bank of Nigeria Plc and its subsidiaries. FBNH is organised into four major business groups; commercial banking group led by First Bank of Nigeria Limited, investment banking and asset management group led by FBN Capital Limited, insurance group led by FBN Life Assurance Limited and FBN Insurance Brokers Limited and other financial services group led by FBN Microfinance Bank Limited.

The contribution of the commercial banking group to the net revenue of FBNH is 94.2%, the investment banking and asset management group contributes 2.7%, and the insurance group contributes 1.3% while the other financial services group contributes 1.8% of net revenue. The contribution of the commercial banking group represents 90% of pre-tax profit. Essentially the performance of FBNH depends largely on the commercial banking group.

The Chairman’s statement in the 2012 annual report and accounts indicates that the overall objective of the transition to FBNH was to maximize shareholder value. The statement also indicates that the setting-up of FBNH as a non-operating holding company was based on a re-appraisal from first principles of the operating and governance structure of all the companies that make up FBNH. These statements from the Chairman are very significant because it is the abandonment of first principles that has brought about the situation in which FBNH is under-performing.

I will illustrate. More than 30 years ago, a company that I knew took a loan for the construction of an office building and warehouse. This loan was granted by a combination or syndicate of at least three financial institutions of which one was an insurance company. If the office building were to be built today, it would cost less than N1 billion and the loan would be granted by one financial institution. The opportunity of having the risks involved in granting the loan assessed by three or more independent entities has been abandoned.

As for the performance of FBNH, I will go back to the 2007 hybrid offer. 3000 units of FBNH shares were purchased for N99, 000 during the 2007 offer. These 3000 units have now grown to 4921 units with bonuses and they are currently worth about N88, 000. I have chosen the 2007 offer price as the reference value for FBNH given that FBNH shares rose to more than N50 per share on the Nigerian Stock Exchange between the 2007 offer and the market crash of 2008. At the time of offer, net assets per share was N7.33 and the dividends paid was N1.00 for the financial year ending March 2007 an N1.20 for the financial year ending March 2008. The net assets per share are put at N13.45 per share in the 2012 annual report and accounts and a dividend of N1.00 per share was paid for the 2012 financial year.

Why has the recovery of FBNH been slow post the 2008 market crash? FBNH has some significant investments that have not paid any dividends over the years and in some cases, the investments are recoding losses. If one looks at the annual reports of the First Bank Group over the years, one would notice that FBNH holds shares in Nigerian Telecommunications, Nitel, Plc. Sometime in 2001/2002, First Bank of Nigeria Plc gave a loan of over $100 million to Investors Group Nigeria Limited, IGNL, such that IGNL could make a deposit for shares of NITEL Plc as the preferred bidder. This loan would not have been granted if First Bank of Nigeria, FBN, Plc had not abandoned first principles. When FBN found itself as the only entity left in discussions with IGNL, the transaction should have come to an end.

In any case, IGNL could not carry the transaction with the Bureau of Public Enterprises beyond the payment of the deposit. The FBN loan to IGNL was first declared as lost but subsequently the Bureau of Public Enterprises issued shares in Nitel Plc to cover the deposit paid by IGNL less the expenses of the Bureau on the privatization of Nitel Plc.

The shares in Nitel Plc were then given to FBN. Recently, there has been an announcement that a liquidator has been chosen for NITEL Plc. This is an opportunity for the directors of FBNH to make a strong case for the Bureau to take back its shares in Nitel Plc and pay cash to FBNH. The shares were given to FBNH because the cash paid by IGNL to the Bureau had been spent by the time the decision was taken by the Bureau not to impose an absolute penalty on IGNL.

The other investment by FBNH that immediately comes to mind is the shares in Airtel Networks Limited. FBNH was amongst the initial shareholders in this company and a number of other initial shareholders have been able to sell their shares at a profit. FBNH has not earned any dividends on this investment over a period of about ten years and FBNH should sell its shares now so as to give some return to FBNH shareholders. There are also issues of whether FBNH as a public company should be involved in investments in private companies that do not publicly publish their balance sheets.

…TO BE CONTINUED

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