Crescent Standard Investment Bank Failure Case Study Review – Assignment of Corporate Governance
Crescent standard investment bank is well reputed in Pakistan market known as crescent group and the member of individuals group and companies. It was large number of share holder. CSIBL has evolved after merger of number of financial institution.CSIBL make after the merger of many companies. The main objective of crescent standard investment bank limited is making super market and merger of financial institutions. The main aim of crescent standard investment banking is creating level playing field for the banking financial and non financial banking sector.
It was made easier by SBP and SECP allowing the commercial banks to under write term finance certificate, commercial papers and other debt instruments issued by the NBFC’s.
It’s involved many activities like that leasing investment banking, housing finance, venture capital, discounting, asset management and investment advisory services.
In May 2006, there had been number of frauds crescent standard investment bank non by business analyst to KET securities limited. It is confirmed bank did not circulate audited accounts for the year ended December 2005 even as late as august 2006.
Merger and Acquisition of crescent group:
The objective of crescent bank was to achieve growth by merge and acquisition with NBFC’s. First crescent bank start acquire in 1999 and then merged with investment bank.
It is very difficult to operate alone in market then they use policy of merger and acquisition.in august 2002, there are two listed share holder altowfeek investment bank and first crescent modarba and new name gave first standard investment bank. Crescent group held 35% share and able to place three nominee. Altowfeek company have paid up capital 345 million.
First leasing corporation limited had informed KSE that three nominees of pak Libya company replace by crescent group. The crescent group purchase strategic equity interest of two leasing companies first leasing and paramount leasing company.
When the paramount merge with first leasing was completed the crescent company held by 52 shares merges of equity. Paid up capital of first leasing is 272 million and paramount paid up capital is 250 million.
Crescent standard investment bank limited had paid up capital 1.28 million and adjusted equity 2.05 million.
After merger CSIBL financial statement is gross income include revenue 186.63mllion and the company had earned profit205.13
During the period june KSE closed high index. So the management hope that would reduce the risk fluctuation.
CSIBL in losses:
In 2005 bank has good progress they upgrade their rating. CSIBL is outstanding TFC issue which s formerly liability of pacifc leasing company. This company merged into CSIBL. CSIBL core profitability had improved ad full retention had increase the level of capitalization.
CSIBL is defaulter in payment of sixth defaulter of term finance certificate issue of 350 million. The large holder pak oman investment company they start court proceedings. The market was surprised when crescent show earing in negative. The account show huge los 2.118 billion. Which converted loss 16.85 shares?
KET analyst felt that these frauds occur due to internal management of the CSIBL. KET wanted analyses of fraud CSIBL that how fraud is occur in CSIBL.
The chairman and director of CSIBL report in press that he was not informed.Commission had also receive latter from manzur ul haq and chairman the sale of the asset without approval of board.
Reasons of failure:
- In the market competition is very high they did not change policy and they focus only mergers and acquisition with other companies.
- They merge altowfeek company but this company has paid up capital 310 million and loses 275 million.
- Chief executive of CSIBL receives notice from SECP the bank was maintaining parallel books of accounts.
- During the inspection in September, Inspector found in30 june 2005 showed on asset based on 9.5529 billion.
- The inspector found that the bank had involved into violation of various accounts which is against the rule companies’ ordinance 1984 and non-banking financial ordinance.
- The parallel book of account showed a placement amount 1.817 billion made by 20.896 million share of PICIF-DFI.
- It also violation of prudential regulation issued by the SECP under 230 section. The main purpose of prudential regulation provides new way to investment in leasing companies and they provide operations company guideline.
- In December 2005, they did not circulate audit accounts even till august 2006.
CSIBL bank shows growth in starting but they do not merge more companies.According to market situation they should be change strategy because environment is very difficult. Books of accounts show true picture. They also give power subsidiary companies. Higher management keep on eye and check and balance daily basis. They did not merge with those companies’ deficit or loss. Make strict policies about which shows wrong accounts and implement strictly to prevent violate the policies.