FCMB - Taking a journey into PERFIDY   

03 December 2018 : Following are some reasons why one shouldn’t comfortably believe  in the earnings provided to you by the management of FCMB. 

1. FCMB has delayed its Q3 result on the basis of the result being audited and formally made an announcement to this effect on October 17.  Finally, it releases the delayed result that is actually unaudited like the other banks that had released their Q3 earnings over a month ago.  This is never a sign of honesty. 

2. FCMB has struggled to generate pre-tax income of N7.1B over the first six months of the 2018 fiscal year.  Suddenly, over the period July 1 - September 30, 2018, FCMB tells the world it has generated pre-tax income of approximately N7.7B.  In my experience covering African companies, most of the time in scenarios like this, I uncover an act of desperation and chicanery somewhere embedded within the financials to tell a better story than the reality of the day.  FCMB has not failed to disappoint.  Without this artificial boost, FCMB will likely have to declare a loss for Q3.   

*** FCMB booked N10.4B  (Ten billion, four hundred million naira) on its income statement representing gains realised from the revaluation of foreign currency-denominated assets and liabilities held in the non-trading books.  This should have been in Other Comprehensive Income.  In more transparent climes, companies go into a lot more detail for non-recurring items that have a significant positive impact on the quarter's earnings to clarify any concerns.  FCMB did not do this.    

3. FCMB's equity statement does not even have a revaluation surplus account reflecting a company that has a history of accounting for events of this nature the proper way. 

These kind of acts are not new; about four years ago, Access Bank made N70B from derivative contracts for hedging purposes according to its management.  Nigerian Banks are likely to have the lowest average PEs across the African continent.  This difference here is no one is excited about it and stock prices continue to tank. 

On an observation note, we all look out for lending growth as a major marker for the future performance of a bank.  FCMB has technically stopped lending while continually experiencing impairments on existing loans.  Lending at the top level (gross) decreased by about N25.5B over the past nine months while impairment on loans increased by N22.4B (relative to fiscal year 2017) thus far with Q4 still in progress. 

The bank's debt level now exceeds its equity level by approximately 15%.  This is something else to pay close attention to.  It's debt level is in excess of 7X its current market value.  This is rarely ever a recipe for success. 

Reporting for EasyKobo on Monday , 03 December 2018 in Lagos, Nigeria

Source : Jude F

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