Sep 2008 Financial News

Diversification pays off for JMMB

Sep 19, 2008

During testing times it pays to be diversified with eggs in different baskets. That was the message coming loud and clear from Jamaica Money Market Brokers' (JMMB) Annual General Meeting (AGM) held at the Terra Nova Hotel in Kingston on Wednesday.

For the year 2007/2008, JMMB saw its revenues dip slightly from J$3.38 billion to J$3.32 billion. For the year under review, JMMB's Group profits came to J$1.06 billion. Its investments in diversified businesses went up by 28 per cent to J$1.1 billion. With inflation now in excess of 20 per cent, JMMB's staff costs increased by 17 per cent due in part by the need for an increase in staff resources necessary to operate new business lines.

JMMB's associate companies really came through this year, with its contribution to the group's revenues increasing by a staggering 209 per cent. Its subsidiary, Caribbean Money Market Brokers' (CMMB) Trinidad and Barbados operations, saw profitability rise by 145 per cent.

Group assets registered a 14 per cent increase, standing at J$102 billion this year as opposed to J$89.6 billion last year.

A major contributing factor here was the growth in the Group's retail base which went up by J$5.5 billion and now means that JMMB has J$50 billion in funds under management. Fee income and commissions went up by 35 per cent to J$321 million.

While its home market Jamaica has proven anaemic, the decision to diversify into the Caribbean and Central America has paid off. CMMB in Trinidad has enjoyed a threefold increase in net profits from TT$11 million to J$35.4 million. Net interest income increased by 112 per cent from TT$56 million to TT$119 million due to asset growth and higher spreads.

Trinidad's Intercommercial Bank Limited, of which JMMB has a 50 per cent interest, now has assets of TT$1.085 billion - a 26 per cent increase in its asset growth. Its Group profit before tax for the 12-month period closed at TT$11.43 million. Intercommercial Bank is currently undergoing construction of its Port-of-Spain branch, which is expected to be open by the end of the year. Last year JMMB acquired an 80 per cent stake in Dominican Republic brokerage firm, Puesto de Bolsa. Here, JMMB is projecting increased profitability for FY 2008/09.
This year saw the Barbados subsidiary returning to profitability. JMMB has plans to open a branch office in the Eastern Caribbean country of St Vincent.

Speaking with Caribbean Business Report from the Terra Nova Hotel on Wednesday, Group CEO Keith Duncan said: "One of the things we want to get across to our shareholders is that we have a diversified business strategy. We are looking to build out our business lines locally, launching our credit capabilities and corporate solutions unit and our insurance brokerage arm."Long-term sustainability and viability is due to the build-out of new business lines locally and regional diversification. We no longer just rely on getting a net interest margin on government paper, rather we are building our credit portfolio via capital market activity."

The aim is to pass on better yields and returns to investors by way of being a regional integrated financial services provider. Many local investment houses have placed a great emphasis on keeping things tight, managing expenses and working with slim margins. Not so, JMMB which has elected to take an aggressive approach by offering new products and services across the region to its 120,000 clients.

Taking a look at the local economy, Duncan is of the view that in the near term it will continue to be anaemic with tourism expected to be resilient. He does not envisage the continued expansion of credit but is preparing JMMB to take full advantage of a bounce back. The true test for local players will be their levels of liquidity and having other business arms performing during these testing times." At this time with the global scene looking bleak, both investors and institutions will have to hunker down. The fallout in the United States will impact most financial institutions. At JMMB only 3 per cent of our proprietary investment portfolio was impacted by Lehman Brothers being forced into bankruptcy. That spells less than one per cent of our proprietary investment portfolio and poses no ominous threat to us. GOJ global bonds will not undergo major stress because most of them are in the hands of locals," said Duncan.

One thing that is clear is that there is a liquidity crunch right now. Jamaican financial houses who had some relationship with Lehman Brothers will be looking to protect their liquidity positions and raise the cost of capital because the cost of capital in the US will go up and it will cost Jamaican houses more now which they no doubt will pass on to their clients.

Duncan surmises that American markets move quickly and perhaps in a month or two this may all be history. What is worrying, though, is reports that Morgan Stanley is pulling lines from all emerging market instruments. It has already done so with leading global investment management firm Pimco which has US$829.5 billion in assets under management.

Liquidity is at a premium and investors will be looking to liquidate assets and remain risk-averse at least for the time being. Asset prices are falling off. Are we close to the bottom yet? Well probably, but there may well be a few gems available with companies that have good fundamentals presenting opportunities for investors.


Source:
Al Edwards
The Jamaica Observer
Friday September 19, 2008

http://www.jamaicaobserver.com/magazines/Business/html/20080918T230000-0500_140312_OBS_DIVERSIFICATION_PAYS_OFF_FOR_JMMB.asp