First Bank Headquarters

Here is the interpretation of  FBN Holdings (FBNH) profit warning issued on Thursday, according to  one of the leading stockbroking firms in Nigeria.

According to the warning sent to the Nigerian Stock Exchange,  FBNH FY 2015 earnings will be ‘materially lower’ than those of 2014 due to recognition of impairment charges on loans within its commercial banking business.

 What does ‘materially lower’ mean?  According to estimates, we already have a reduction from N82.8bn (US$414.2m) Net Profits in 2014 to N61.6bn (US$307.9m) in 2015e, a decline of 25.7% y/y. Consensus estimates also show a 31.4% decline to N56.8bn. But ‘materially lower’ could mean much more than this. Net Profits at 9M 2015 were N50.2bn (US$251.1m).

 The obvious possible cause of much lower Net Profits would be provisions arising from the oil and gas sector, specifically provisions arising from FBNH’s loan to Atlantic Energy, which FBNH acknowledges is in the region of US$430.0m (N86.0bn).  Atlantic Energy’s business is financing joint venture obligations of the Nigerian National Petroleum Corporation (NNPC) in exchange for oil.

 FBNH recently (in January this year) reported the Atlantic Energy loan as performing, and it did not feature in the 2.6% annualised cost of risk (COR) reported in 9M 2015. In response to questions, FBNH today stated that a preferred bidder for Atlantic Energy would pay 53% of its outstanding debt immediately and the rest over two years.