Stanbic IBTC this is surreal; GT Bank & Attijariwafa Bank

Dear Africa Interested Individuals:  

                                                         Stanbic IBTC about four months ago made known its intention to raise fresh equity in the amount of $102m (N20.4B) from its existing shareholders (the way Nigerian banks blaze through capital should be a case study for Harvard & Darden Business Schools - the two largest producers of business school case studies worldwide) at a price of N25.50 per share later in 2015.  About two months after expressing its intention, Stanbic IBTC releases its H1 2015 earnings and tells the world its profit attributable to shareholders has declined 46% year-on-year for the first six months of 2015 after rising by 57% from FY 2013 - 2014.

The result was released (in record time) within the first week after the end of the reporting period on June 30th, 2015.  What does a bank that wants its shareholders to grant it fresh equity in the amount of $102m do?  It gives out $45m (N0.90 per share) in the form of interim dividends from its retained earnings to the same shareholders it wants to give it $102m a few months later.  By the time transaction costs and commissions are netted out, Stanbic IBTC will assuming 100% of the rights taken up, only receive about 54% of its intended sum due to this interim dividend payment.

The dividend payment of N0.90 is actually more than the earnings per share achieved by Stanbic IBTC for H1 2015 of N0.80!  The depressed H1 profit is all gone on dividend payment and the company dug into its reserves to please? (displease) shareholders.  This is a classical case of spiting your thumb to please your finger.  You delivered a very bad result after a very good result (you are advised to read my article on this blog titled: Stanbic IBTC, I am not impressed) six months prior.  You tell the whole world you need fresh equity capital and the best action plan is to deplete retained earnings by $45m to the same shareholders you will go back to; ask them to pretty much refund you what you gave them and then double it a few months later?  Are you trying to bolster your capital or just act like it?  It is for this same reason that FBN Holdings did not pay a dividend for FY 2014; to bolster its capital base.  

Over the past eight days, the stock price has been bulldozing its way back to N25.50 to ensure the rights issue is not marred before it even starts despite the overall downturn in the market.  The rights issue is now on hold indefinitely by the SEC due to some unapproved payments to Standard Bank (the parent) that may lead to a restatement of its earnings once all is said and done and investigations are concluded.  Despite this news and the drastic decline in the prices of bank stocks (on September 9th, 2015) due to the removal of Nigeria from the JP Morgan Global Bond Index, the stock price declined by only 0.44% to N24.90.  

Stanbic IBTC was selected as the stockbroker to the Federal Government of Nigeria during the Presidency of Goodluck Jonathan (the Chairman of the bank was part of Nigeria's economic team during the Goodluck presidency) and it appears it may not have fully complied with Federal Government regulations ironically with monetary implications.  You will typically expect foreign owned banks to be the first to comply with regulations and due process.  Nigeria, once again being abused by everybody and owned by nobody.  I will not be surprised if all the fee payments made to Standard Bank over the years by Stanbic IBTC exceed the amount (about $53m) that Standard Bank has to pay Stanbic IBTC as a majority shareholder for its rights issue allotment.  Well, there is a new Sheriff in town at the top of the hill; hopefully, the abuse part will be curtailed to the barest minimum. Stanbic IBTC bank continues to strive to remain Nigeria's highest priced banking stock (battling it out with GT Bank;) this goal started in earnest in the fourth quarter of 2012 when its shares were reconstructed and its price pretty much doubled.  It is for reasons like this that Nigerian banks continue to trade at abysmally low price levels ($0.13) relative to other African banks across the continent.  The National Bank of Malawi is trading at $0.48 per share, Attijariwafa Bank, Morocco is trading at $35.00 per share.  

GT Bank's non-performing loans as at June 30th, 2015 amounted to about $170.5m.  Attijariwafa's non-performing loans as at June 30th, 2015 amounted to about $1.86B.  Despite this, the RoE for Attijariwafa Bank as at H1 2015 is 14.6% while that of GT Bank is 14%.  When my asset quality is 11X worse than yours and I still achieve a better RoE than you, there is nothing more to say.  Remember that GT Bank is the 'darling' of the Nigerian banking industry.  Both banks have subsidiaries in eight (8)  other African countries excluding the parent home country with only one overlap which is Cote' D' Ivoire.  Interestingly, this one overlap is the only loss-making subsidiary for GT Bank as at H1 2015.  GT Bank's net income attributable to shareholders for H1 2015 is 9% higher than that of Attijariwafa Bank and still its RoE for H1 2015 came in lower. 

Even Ghana with its very difficult operating environment (worse than Nigeria in my opinion) still has at least two banks trading at more than a $1.00.  Ghana Commercial Bank (GCB) has already achieved a RoE of 20% which is what UBA & Zenith are hoping to make or slightly exceed by the end of the 2015 fiscal year.  This is despite GCB being debt burdened.  GCB also has a better debt quality of utilization score than all five prominent Nigerian banks (First, Zenith, UBA, Access & GT Bank.)  Nigerian banks have been given more and returned less; it is supposed to be the other way round!         

Nigeria has seven letters and so does the word honesty; I am sorry to say this is pretty much all they have in common and the vowel e.  Appointment of Ministers will not save our stock market beyond the initial flash in the pan.  Transparency by listed companies will save the Nigerian stock market and Nigerian banks have to take the lead by putting the truth where their money is.  Nobody is being fooled anymore; Nigerian bank stock prices are being made a fool of with PERs below 3X and no one is seriously batting an eyelid and logically they should be batting both eyelids!   

I will keep giving you the truthful insights in black and white; you can finally decide to work with it or keep trying to work around it by calling me a rogue analyst like FCMB and cronies.

   

Best wishes, either way.  Apply wisdom nonetheless; remember, posterity is never prejudiced.     

   Tell others to tell others about this Africa Research Blog; the financial truth is here.  The countdown till this Blog goes exclusive continues.