Stanbic IBTC Holdings Plc emerged ‘victorious’ from its recent regulatory and legal battles with its stock price depreciating by N29.4 billion
Reprieve came the way of embattled Stanbic IBTC Holdings Plc mid last week when the Central Bank of Nigeria (CBN) reversed the verdict of the Financial Reporting Council of Nigeria (FRC) against the holding company for alleged corporate governance breach that bordered on its financial statements for 2013 and 2014.
However, the holding company’s victory was not without severe wounds as its shares on the Nigerian Stock Exchange (NSE) suffered heavy stock price depreciation of 13.45 percent to the tune of N29.4 billion in about seven days of its legal and regulatory battles.
A Federal High Court sitting in Lagos also ruled in favour of Stanbic IBTC, within the period, on same sanctions imposed on it by FRC over alleged irregularities that border on defective financial statements for 2013 and 2014, among others.
The Stanbic IBTC travails which commenced Monday, October 26, apparently transmitted bad tidings to investors and capital market operators who must have adjusted their preferences for the “erring” company’s equities, thereby setting the stage for a dip in Stanbic IBTC stock price.
Specifically, Stanbic IBTC stock which had closed N23.00 per 50 kobo ordinary shares the previous week ending October 23, with market capitalization of N230 billion, dropped by 5 per cent when trading resumed October 26 with the company’s stock trading N21.85 per share and market capitalization decreasing to N218.5 billion at the end of the opening day’s trading.
The FRC had suspended the chairman of Stanbic IBTC Bank, Atedo Peterside, and other senior officials of the bank over accounting irregularities in the bank’s 2013 and 2014 financial statements.
Peterside was suspended alongside Mrs Sola David-Borha, the bank’s managing director/CEO as well as KPMG’s Arthur Oginga and Daru Owei.
The financial reporting body disclosed that the affected individuals were suspended for attesting to “misleading” financial statements.
The council which pointed out several inconsistencies in the bank’s reporting, including IBTC’s failure or refusal to disclose what exactly millions of naira grouped under “donations” and “others” were used for, said that the affected individuals would remain suspended till investigations into their alleged wrong-doings were concluded.
In one instance, the total fee IBTC bank paid to KPMG Professional Services for non-audit services was found to be inconsistent with what was disclosed in the financial statements for the years under review, the council said.
“The Council observed that Stanbic IBTC regularly flouts CBN regulations. In 2014 for instance, a total penalty of N28, 000,000 was imposed on the group. Stanbic IBTC seems to have a penchant for poor disclosures which further report,” the statement said.
The council instructed the directors of Stanbic IBTC to withdraw the Financial Statements and restate them in accordance with the provisions of the law.
This damning pronouncement resulted in further drop in the Stanbic IBTC stock price which decreased from N21.85 to N20.76 per share on October 27, a drop of 4.9 per cent. Market capitalisation dropped from N218.5 to N207.6 billion resulting in N10.9 billion losses to investors in the holding company’s stock.
But the new generation bank quickly “hit” back at FRC in a bid to defend its corporate strategic. It says that statements by FRC on developments in the bank contained “several inaccurate and unseemly allegations” against the Stanbic IBTC, and faulted the actions by the financial reporting body as “procedurally defective”.
Faulting the decision of FRC to suspend its chairman, Atedo Peterside, and other senior officials over accounting irregularities in the bank’s 2013 and 2014 financial statements, the bank’s management argued that it met the disclosure requirements of the international financial reporting standards (IFRS).
In a statement jointly signed by Mrs. David-Borha, and Company Secretary, Chidi Okezie, and made available to The UNION, the bank faulted FRCN’s allegations and described them as inaccurate and “procedurally defective.”
“FRCN’s allegations are inaccurate and unfortunate, and the manner in which it has chosen to make them is procedurally defective. Whilst FRCNcorroborates the findings in this takes refuge in Regulation 21 of the Directorate of Inspection and Monitoring Guidelines Regulations 2014 for the wide publicity that it has given to its regulatory decision, Regulation 21 only applies ‘Where the Panel and the entity agree that accounts are to be rectified by way of revision or restatement’.
“That is not the case here, because Stanbic IBTC does not agree that its accounts are defective or require rectification. Moreover, Regulation 27 makes clear that where a reporting entity does not accept FRC’s position, FRC ‘shall institute a legal action against the entity’. FRC has ignored this laid down process in preference for self-help and media publicity.”
Disagreeing with the position of FRC over the matter, Stanbic IBTC insisted that the matters that FRC alleged to be wrong were not wrong in any material respect. It explained that it followed the rules on matters of financial reporting and that its directors were equally guided.
“The matters that FRCN alleges to be wrong are not wrong in any material respect and many are in any event not matters of financial reporting at all, but matters of business decision and judgment for Stanbic IBTC and its board of directors. For example, the decision whether to enter into a sale and lease back, whether in relation to intellectual property or any other asset, is a business decision and entirely a matter for the board of directors of Stanbic IBTC and certainly not a matter for FRCN.
“In the same vein, NOTAP’s refusal to register a franchise agreement does not render the agreement null or void, or indeed relieve Stanbic IBTC of its liability. It merely means that any foreign currency payment due to the foreign counterparty under the unregistered agreement cannot be remitted.
Stanbic IBTC has not and will not make any remittance which is subject to NOTAP approval without obtaining such approval”, the bank said. Stanbic IBTC’s stout defence appears to have yielded the desired results as the CBN intervention returned a verdict of ‘no wrong-doing’ in favour of the holding company while it slammed FRC for failure to act within the ambit of the rules and regulations guiding its regulatory functions.
In a letter signed by the CBN Governor, Godwin Emefiele, the apex bank maintained that FRC lacks the ‘authority’ to suspend Stanbic IBTC’s directors, adding that the sanctions imposed on the holding company were not justified.
Part of the letter reads, “The CBN is concerned about the apparent failure of the FRC to follow due process as aid down by its own FRC Act and regulations, in arriving at the regulatory decision …”
“We are seriously concerned that such a drastic Regulatory Decision could be taken on an entity under the regulation and supervision of the Central Bank of Nigeria (CBN) without any form of consultation with the Bank especially as the CBN is responsible for promoting a Safe, Stable and Sound financial system.
“Yet, such a Regulatory Decision and the manner of the announcement is not only capable of eroding investor confidence but also inimical to financial system stability. Indeed, the FRC’s ability action has already precipitated a fall in the value of the shares of Stanbic IBTC by about 18 percent since the announcement of the Regulatory Decision.
“In the light of the foregoing facts, which clearly show that FRCN did not follow due process, the Bank regrets to inform you that it is unable to accede to your request to take disciplinary action against SIBTCH. Indeed the CBN does not see any reason to advice/compel SIBTCH to obey the sanctions meted to it by the FRCN.”
The CBN intervention almost coincided with that of a Federal High Court sitting in Lagos which returned similar verdict of ‘no wrong-doing’ in favour of FRC about mid last week.
The reprieve apparently did not create immediate impact on the stock price of the financial services institutions as Stanbic IBTC suffered heavy stock price depreciation by November 3 when the CBN letter was made public. As at that date, the holding company’s stock depreciation had deepened to N18.91 per 50 kobo share and market capitalisation of N189.1 billion, a decrease of N29.4 billion, representing 13.45 percent drop.
The ‘healing’ effect of the CBN intervention and the Federal High Court ruling began to impact on the Stanbic IBTC whose stock price appreciated by N1.96 per share closing N20.87 per share last Friday – November 6. This represents 10.36 per cent rise over the previous day’s trading when the stock dipped to N18.91 per share.
– Sam Diala