Question

Review the following excerpt from the Newsday March 13, 2014 and answer the following questions:

1. Is this a case of an agency problem? Explain why or why not? (4 marks)
2. Did this transaction result in any loss to the shareholders? (4 marks)

A notice was yesterday posted on the Trinidad and Tobago Stock Exchange (TTSE) website in relation to share transactions of First Citizens Bank (FCB) Limited.
The notice, dated yesterday, read: “First Citizens Bank Limited ...informed the Stock Exchange that on January 14th, 2014 a Senior Executive Officer sold 634,588...shares.” The notice did not provide further details.
However, the transaction appeared to relate to an acquisition by FCB group chief risk officer Phillip Rahaman of a reported 659,588 shares during an initial public offering last year. The figures quoted suggested some of the shares were retained. However, it is unclear to whom the shares were sold. Stock exchange rules do not require the purchaser to be disclosed.
In the Senate on Tuesday, Finance and Economy Minister, Larry Howai revealed the transaction was subject to a probe by the SEC and he had ordered an audit by PricewaterhouseCoopers.
Peter Permell, who yesterday described himself as a spokesperson for minority shareholders of FCB, yesterday estimated that the transaction resulted in a profit. He queried the apparent time lag between the transaction and its reporting on the stock exchange website.
“What this means is that at a closing price of $42.15, the sale of 634,588 shares by the Senior Executive Officer would be worth $26,747,884,” Permell said in an emailed statement. “Less transaction fees and when one takes into account the acquisition price of approximately. $14 million this results in a realised profit of approximately. $12.7 million.”

Answer 1

1) There is no agency problem. The agency has no control over selling of shares of an executive. Further the disclosure of share sale is on the senior executive who is selling the share.

2) There is no loss to shareholders due to this transaction. The Executive in fact made a profit of $12.7 million