Businesses comes with its successes and failures and both have mutually exclusive

chance of occurrence however, a prudent management strives to mitigate risks to avoid

failures and in the long run give competing earning over its investments. Business cycles
have a profound impact on businesses successes and failures and no institution can avoid
its impact. The institution that we have selected for our review has however marked a
success ridden path with little failures.

FIRST CREDIT AND INVESTMENT BANK LIMITED

SUCCESSES:

 Sole Arranger, Manager & Advisors on WAPDA Bonds;

 Civil Aviation Authority Bonds;
 History of Profitability Defying Odds;
 Dividend Payout;
 Improvement of Rating in Economic Crisis;
 Listing on KSE in Turbulent Times; and
 Profits in the Biggest Economic Recession since the Great Depression.

Failures:

 Lack of Product Marketing;

 Lack of innovation;
 Low Appetite for Risk;
 Limited Sources of Funds; and
 Inherent Failures of the Industry.
 Sole Arranger, Manager & Advisors on WAPDA Bonds

The bank has mandated four WAPDA Bond issues the list of which is provided as under:

 WAPDA BOND-3RD ISSUE

The bond was issued in June of 1990. It was a 10 year bond issue, amounting to Rs. 6,844
million backed by sovereign guarantee carrying rate of profit of 12.50%.
 WAPDA BOND-4TH ISSUE
The bond was issued in June of 1992. It was a 10 year bond issue, amounting to Rs. 1,431
million backed by sovereign guarantee carrying rate of profit of 15%.
 WAPDA BOND-SPECIAL ISSUE 11
The bond was issued in December of 1999 when the country was facing its worse
political upheaval since the death of Gen. Zia-ul-Haq. It was a 5 year bond issue,
amounting to Rs. 1,600 million backed by sovereign guarantee carrying rate of profit of
16%. The success for the arrangers, in this was over subscription of the issue.
 WAPDA BOND-9TH ISSUE
The bond was issued in June of 2001. It was a 5 year bond issue, amounting to Rs. 5,000
million backed by sovereign guarantee carrying rate of profit of Discount Rate+2%.

CIVIL AVIATION AUTHORITY BONDS

The bank has mandated One CAA Bond issues the detail of which is provided as under:

The CAA bond was issued in the year 1991. These were bearer bonds in different
denominations. The issue size was Rs.893 Million.
 History of Profitability Defying Odds

Incredible Dividend Payout History

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
(HY)
In Percentage
Cash 10 - 7.5 10 - - - 15 15 -
Bonu 234.5 15 10 - - - - 10 10 25
s

Listing on KSE in Turbulent Times

 Improvement of Rating in Economic Crisis
CREDIT RATINGS OF INVESTMENT BANKS
FOR YEARS 2007 & 2008

LONG TERM SHORT TERM OUTLOOK

RATING RATING
NO. OF NOTCHES NO. OF NOTCHES AGENCY DATE
UPGRADED/ (DOWN 200 UPGRADED/
GRADED) FROM LAST (DOWN GRADED)
NAME 2008 2007 YEAR 8 2007 FROM LAST YEAR 2008

FIRST CREDIT A- BBB+ 1 A2 A2 - MAINTAINED STABLE JCR 31-Dec-08

SECURITY A A - A2 A2 - MAINTAINED STABLE JCR 12-Aug-08
ESCORTS A A - A A1 - MAINTAINED STABLE JCR 2-Feb-09
IGI A A - A1 A1 - CHANGED TO NEGATIVE PACRA 23-Dec-08
TRUST A- A+ (2) A2 A1 (1) CHANGED TO NEGATIVE PACRA 23-Dec-08
FIRST DAWOOD A- A+ (2) A2 A1 (1) CHANGED TO NEGATIVE PACRA 20-Jan-09
ORIX A- A- - A2 A1 (1) RATING WATCH PACRA 23-Dec-08

Profits in the Biggest Economic Recession since the Great Depression

ANALYSIS OF PROFIT & LOSS ACCOUNT (MARCH-2009):

(RUPEES IN '000)
PROFIT
NAME OF PROVISION/ PROVISION/ PROFIT
BEFORE PROFIT
INVESTMENT LOSS ON LOSS ON AFTER
PROVISION BEFORE TAX
BANKS SHARES OTHER INV. TAX
AND TAX
ESCORTS INVESTMENT
BANK (27,611) (10,808) - (38,419) (38,664)
FIRST CREDIT & INV. BANK
LTD. 46,727 (13,309) (8,000) 25,418 15,965
FIRST DAWOOD INV. BANK
LTD. (716,464) (65,417) (417,547) (1,199,428) (1,204,428)
IGI INVESTMENT BANK LTD. (22,595) (171,259) (63,822) (257,676) (259,845)
INVEST BANK (114,990) (67,609) - (182,599) (186,613)
ORIX INVESTMENT BANK
LTD. (142,014) (107,616) - (249,630) (250,197)
SECURITY INVEST. BANK
LTD.* (4,214) (23,053) - (27,267) (27,267)
TRUST INVESTMENT BANK
LTD. (255,895) (120,884) (74,362) (451,141) (451,141)
 Lack of Product Marketing

It is not only always hard work that makes you successful but of course waiting for luck
without any efforts would do no good. It signifies the importance of marketing. FCIB
lacks marketing of its Deposit products which offer competitive returns but without
proper brand development, it is not possible for individual investors to trust the bank with
their priced investments.

Lack of innovation
To be more competitive and to dominate the industry one has to be innovative.
Investment banks have historically been in the limelight with very few avenues to invest
their high cost funds. In such case investment banks have to innovate and develop
products addressing needs of the corporate clients in amiable fashion.

Low Appetite for Risk

The bank’s management has never witnessed a default in its loan portfolio since
incorporation. This is very commendable with regards to the performance of our industrial
sector which has not performed so well in the 1990’s and now in the last year.
Limited Sources of Funds

Inherent Failures of the Industry

Investment bank industry internationally is known for its diversified products including
future and forward swap agreements. However, in Pakistan it is still quite young moving
up with baby steps. Compared to its pears ‘The Commercial Banks’ the Investment banks
have some inherent disadvantages. Commercial Banks have lower cost of funds, as low
as 0% to 5%, compared to the Investment Banks where they have to rely on leveraging
from the Commercial Banks which is obviously at a higher cost. Investment Banks are at
a loss also at the lending/ investing side of the balance sheet. Commercial Banks as like
Investment Banks can invest in Stock, they can participate in Corporate Financing as well
as Money Market lending. Commercial Banks being greater in size can participate in
commercial lending more vibrantly due to which they normally end up being arranger
and advisor gaining heavily from advisory fee and arranging commission. In addition to
this Commercial Banks can more efficiently make loans to consumers and formulate
market based efficient products like ‘Ready Cash’ by Union Bank, for small businesses
not to mention the other variety of trade based products like discounting of bills and
export re financing. These reason combined with lack of financial products in the money
and capital market, Investment banks in Pakistan suffer greatly in paying to their stake
holders competitive value on equity. The highest return on equity earned by an
Investment bank in 2008 was 16.20% (Escorts Investment Bank) where as Commercial
Banks posted in excess of 27% (MCB). Commercial Banks have equity base many times
greater than Investment Banks. The highest equity of an Investment Bank is 2.24 Bln.
(IGI Investment Bank) where the highest equity for Commercial Banks is 65 Bln. (HBL).

The competitive disadvantage faced by Investment banks in Pakistan are not unique, in-
fact these are the same problems which were faced by the banks in America. Addressing
to this issue American Congress passed an Act in 1933,called the ‘Glass-Steagall Act’, to
restrict Commercial Banks in taking direct exposure in Equity markets the bill was
however, later replaced by another Act in 1981, called the ‘Depository Institutions
Deregulation and Monetary Control Act’ allowing limited exposure in Equity market for
Commercial Banks.