Feb 2008 Financial News

FCI Releases Q108 Results

Feb 29, 2008

FirstCaribbean International Bank Limited
Results for the First Quarter Ended January 31, 2008

All figures quoted in United States Dollars unless otherwise stated

Earnings Per Share
The first quarter of fiscal 2008 was a rare yet challenging quarter for FirstCaribbean International Bank Limited (FCI). The Bank reported Earnings Per Share (EPS) of 2.7 cents, down a significant 48.15 per cent on the comparable period in fiscal 2007. However, this was due to the fact that the prior year’s comparative included a one off gain of $15.4 million in relation to changes of policy health benefits while the quarter under review included a one off loss of $7.2 million in relation to hedge accounting (See Below). If we exclude the two one off items: year on year, the Net Income was up 6.5 per cent and EPS would be up 6.7 per cent from approximately 3 cents (Q107) to 3.2 cents (Q108).

Two significant factors affecting Q108’s Earnings:

1) Global Credit Spreads- Earnings on US dollar investment portfolios continued to be adversely impacted by widening of credit spreads which started during the third quarter of last fiscal year. Earnings on the portfolios for the quarter were $15.9 million below the prior year’s comparative.

2) Hedge Accounting- In the prior year the Group was unable to claim hedge accounting for certain interest rate hedges. The impact on the current quarter was an accounting loss of $7.2 million greater than the prior year comparative. The Group has since reinstated these hedges from an accounting perspective and as such accounting losses are not expected to occur in the future quarters.

Financials
• Net Interest Income amounted to $105.63 million, down a marginal 0.24 per cent on the figure for Q107.
• Operating Income totaled $17.5 million, down a significant 37.20 per cent on Q107.
• Net Loans & Advanced stood at $6.3 billion, up 3.18 per cent on the year end value.
• Customer Deposits & Other Borrowings amounted to $9.5 billion, down on the year end value by 5.8 per cent.

Impact of VISA Restructuring
In the last quarter of fiscal 2007, FCI estimated the impact of the VISA restructuring on its earnings to be a gain of $52.4 million. However, on February 25, 2008, VISA announced its intent to proceed with an initial public offering of its class A shares in the range of $37 to $42 per share. This suggests that the fair value of VISA shares is $15 million to $19 million lower than FCI’s book value. As a result, should the IPO and mandatory redemption of shares occur in the second quarter of fiscal 2008, FCI will likely record a loss on sale in respect of those shares.

Recommendation
Although the Bank’s core operations were up approximately 6.5 per cent, year on year; the overall EPS has been affected by one off items and with the anticipated negative impact with respect to the VISA IPO, we are revising our Forecasted EPS downwards to 11.5 cents (TT$0.73). At the current price of TT$12.50 and the revised Forecasted EPS this share is trading at a high multiple of 17.12 times. Thus, we recommend a SELL on this share.

Gia Singh
WISE Equity Research Team