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RCBC stock takes beating in aftermath of Bangladesh Bank heist

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RCBC stock takes beating in aftermath of Bangladesh Bank heist

With a Philippine Senate probe underway into 'sinvolvement in the theft of Bangladeshi central bank reserves, investorshave quickly turned their backs on the company.

Hackers stole US$101 million from the Bangladesh Bank'saccount with the New York Federal Reserve Bank in early February, with US$81million of the funds ending up in accounts at a Rizal Commercial Banking branch.

About two weeks after the news of the heist broke in lateFebruary, the Senate began questioning RCBC officials. Shares in RCBC were on adownward spiral through March, hitting 29.10 Philippine pesos per share March22; the lowest level since December 2011.

The stocks of three peer banks, with total assets less than15% larger or smaller than RCBC's, went the other direction, although RCBCreported a bigger percentage increase in 2015 earnings than any of them.

"What you can just say is that the timing of thedecline coincided with the [Senate] hearings. I think it is also safe to saythat investors are concerned about the potential consequences of thehearings," Charles William Ang, an analyst at COL Financial, said in an interview.

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On March 23, the day after RCBC shares closed at a multiyearlow, CEO Lorenzo Tan took a leave of absence.

The scandal shed light on lapses in internal controls atRCBC. A branch of the bank received the money in four accounts that laterturned out to be fake, while the manager of the operation allowed thewithdrawal of the funds even after receiving a request to stop it from the NewYork Fed.

During a March 29 Senate hearing, Senator Sergio Osmeñapressed Tan to answer why it took so long for him to be alerted. Tan saidbranches had been allowed to handle transactions of US$400 million or morewithout raising red flags to management.

"The money would have been long gone before it comes toyou at the end of the day," Osmeña responded, saying it was "verypoor compliance."

As Tan was being grilled, RCBC shares were down more than10% year-to-date, while none of its three competitors were in the red.

RCBC's stock had traded at a smaller premium to earnings,compared to the three biggest banks in the Philippines. The gap narrowed afterRCBC reported a gainof more than 15% in 2015 net profit, only to widen again as the Bangladesh Bankepisode unfolded.

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The inquiry by legislators is continuing, and it may keepRCBC under pressure in the market. But not all are bearish about the stock.

Management at Cathay Life Insurance Co. Ltd., which a 20% stake in RCBC in 2015,stood by its investment decision. Lin Chao-Ting, executive vice-president ofCathay Life Insurance, said in an interview with The Nikkei that the Taiwanese company is still confident aboutRCBC's prospects, saying the return on the Philippine bank had been"pretty good."

In 2015, the bank had a return on average equity of 8.89%,the lowest in its peer group and down 42 basis points from the previous year.But the profitability of UnionBank of the Philippines and declinedmore, with their ROAEs dropping 701 basis points and 109 basis points,respectively, during the period.

RCBC "is still fundamentally strong. For the timebeing, it will be able to withstand all that's happening all around," JoseAlberto Santos, head securities trader at Campos Lanuza & Co. Inc., said inan interview.

The stock recovered some ground in April.

As of April 4, US$1was equivalent to 46.21 Philippine pesos.

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