International Portfolio and Wealth Manager, Daniel Tittil says owning shares in First Citizens Bank’s may be a good hedge against the devaluation of the Jamaican or Trinidadian dollar against the US dollar.

FCB is a majority state-owned institution in Trinidad and Tobago. The company is conducting its second “additional public offer” (APO), with the government selling some 10 million of its shares at TT$50 per share. 

If the offer is fully subscribed the bank would raise some TT$543 million (about US$80 million). The offer is expected to close on July 22.

Speaking on Taking Stock with Kalilah Reynolds, Tittil explained that roughly 72 percent of FCB’s net assets are held in US dollars. 

“So, if you are a Jamaican investor and you are worried about the Jamaican dollar value against the US dollar or you’re a Trinidad investor worried about the TT dollar value against the US dollar, then this is a good investment to hedge your exposure,” he said. 

According to Investopedia, hedging against investment risk is the strategic use of financial instruments or market strategies to offset the risk of any adverse price movements.

FCB’s market share

FCB is the fourth largest financial institution (by market capitalization) listed on the Trinidad and Tobago Stock Exchange (TTSE), Tittil noted. 

“When you buy into FCB, you’re buying into a large company… JMMB research says that FCB has the second largest domiciled bank in Trinidad with a market share of 18 and 20 per cent in terms of loans and deposits respectively,” he added.

He also noted that roughly 21 percent of the bank’s total loan portfolio as well as more than half of total investment securities are government-related assets. 

“So when you invest in FCB, we’re also investing in the Trinidad government,” he said.  However, he emphasised that the bank’s day-to-day operations are managed independently and not by the Cabinet. 

Tittil also noted the bank’s recent announcement that it intends to seek banking licenses in Guyana and Jamaica to expand operations across the region. He said that if approved, this would offer great diversification to FCB’s operations.

Is $50 a fair price?

Tittil said based on his analysis of the historical book value of the company, the APO is slightly overpriced at TT$50 a share.

However, he said that Jamaican investors who are interested in the APO and who do not currently invest on the TTSE have two options to participate in the offer.

He explained that investors can choose to transfer their shares in one of the cross-listed JSE/TTSE securities from the JSE to the TTSE. This will give investors access to TT dollars.  If they sell their shares in the cross listed company, they can then use those funds to participate in the FCB APO. 

The second option would be to convert Jamaican dollars to US dollars then to TT dollars to participate.