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Financial News

Aug 2012 Financial News

JMMB sanitises Capital & Credit debt

Aug 03, 2012

Jamaica Money Market Brokers (JMMB) says it has cleaned out and transferred more than two-thirds of the bad debts plaguing its newly acquired merchant bank and plans to re-apply for a commercial banking licence within two years.

The company also expects to finalise the merger of newly acquired Capital & Credit Financial Group (CCFG) by March 2013 having began the integration from July 2. Seventy-four of the 160 staff at CCFG were cut.

The acquisition will result in JMMB winding-up CCFG's securities arm, while keeping its merchant bank, pension, funds management and remittance services. These will eventually receive JMMB branding.

"We have moved a significant amount of bad debt out of the bank to free up capital. We will be looking to aggressively have a team to wind-up the non-performing loans and another team to grow the loan portfolio. The bad loan portfolio will be significantly reduced, almost 70 per cent of the bad loans will be moved out the bank," explained JMMB Group Chief Executive Officer Keith Duncan in an interview with the Financial Gleaner.

The bad loans were moved from the merchant bank into a "separate special-purpose vehicle" or a related shell company which will manage the subsequent sale of the assets underlying the bad loans over a two-year period.

Duncan declined to reveal the precise size of the current bad debt portfolio and also asked that the vehicle remain nameless until the group files its first post-acquisition financial report for the September quarter.

Capital & Credit had J$3.2 billion in non-performing loans plaguing the J$6.1-billion loan portfolio at year ending December 2011. The current size of the bad debt portfolio was not disclosed nor the actual amount of the debt transferred.

As part of the acquisition deal, CCFG's legacy shareholders Ryland Campbell, Andrew Cocking and Gregory Shirley, had committed to collect up to J$1.5 billion or half of the bad loans held by the merchant banking subsidiary, before the acquisition closes; or otherwise lose up to 50 cents per share of the J$4.55 per share paid by JMMB for the group.

The CCFG legacy shareholders, including founder and former chairman Ryland Campbell, received J$4.05 for the sale of shares with 50 cents kept in escrow. They will receive the remainder of the amount in escrow based on the proportional recovery of the bad debts.

"So if they recover the entire bad debt portfolio they will receive the 50 cent per share," said Duncan. "If we receive half they receive half."

The parties will assess the actual collections and CCFG's performance by August 14.

The JMMB-CCFG merger creates a powerhouse with assets of more than J$160 billion and client base of 190,000, including 9,200 Capital & Credit clients.

JMMB's last try at a commercial banking licence was rebuffed in 2008 by the Bank of Jamaica. However, it snagged approval for the merchant banking licence under the acquisition deal. Its new bank, however, is a small operation with three branches.

Bright future

Still JMMB consultant and former head of marketing Senator Imani Duncan-Price appeared to suggest that JMMB sees a future where it will be a big enough player to rival the top two banks, National Commercial Bank Jamaica and Scotiabank Jamaica, which together account for 73 per cent of the commercial banking market.

"I am sorry for them," said Duncan-Price.

Right now, however, JMMB's is on integration and stabilisation.

"We are looking strategically at making inroads in the securities services market. We feel we can do that because we can make a difference in people's lives ... and this idea of a 'top two' (banks) will not define where we are going to go," she said.

Duncan, who is her brother, explained that by financial year 2013-14, JMMB intends to begin the process of seeking a commercial banking licence.

"Banking is too tough on consumers in Jamaica with high fees and low interest rates. With nine JMMB branches and three from CCFG branches, we don't have the high overhead infrastructure to manage, so the margins won't be so high on loans and we will pay better rates on deposits and lower fees. That's the plan to offer services in the JMMB way," said the group CEO.

Jamaica's seven commercial banks are valued J$629 billion by assets and J$410 billion by deposits, according to latest BOJ data for the March quarter.

Capital and Credit Merchant Bank (CCMB) currently has a slight edge on two of the commercial banks with J$19 billion of assets - Citibank Jamaica has J$18 billion, while PanCaribbeanBank has J$17 billion.

JMMB Group's J$124.7 billion in assets are so tightly matched with its liabilities that it holds J$10.8 billion in capital at yearend March 2012. The company, however, continues to grow and doubled its yearend profit to J$2.2 billion as it benefited from reduced interest expenses.

Duncan declined to reveal the capital structure of the bolstered JMMB Group following the acquisition.

"I can't tell you that before the results come out," said Duncan, citing regulatory disclosure requirements. "I am anxious to say it looks good. We are way ahead of regulatory guidelines and have excess capital."

The first reporting for the combined group will be released in November for the quarter ending September 30.

JMMB currently holds some 93 per cent of the CCFG and will obtain the remainder provided no shareholder objected by July 26 via court order.

"There has been no (objection) so far. We do not expect them to reject the offer. They are getting tremendous value," said Duncan.

The remaining timeline for the financial year includes: September 3 for Capital & Credit Securities Limited clients to be integrated fully in JMMB Investments; September 27, the annual general meeting outlining the new group structure; prior to March 2013, JMMB will create a new and larger branch at Ocho Rios offering the integrated merchant bank services; and prior to March 2013, JMMB will re-enter the securities market in Trinidad and Tobago via an outfit called IBL Investments.

JMMB already co-owns and operates a boutique commercial bank called Intercommercial Bank Limited, which is resident in Trinidad.


Source:
Steven Jackson, Business Reporter
steven.jackson@gleanerjm.com
Jamaica Gleaner
Friday August 3, 2012

http://jamaica-gleaner.com/gleaner/20120803/business/business1.html