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Financial News

Jan 2009 Financial News

'No Bonus' NCB Cap cuts annual benefit in rough environment

Jan 25, 2009

Forced into prudent cost management measures in an environment where capital markets worldwide have crumbled, National Commercial Bank (NCB) Capital Markets - the wealth management arm of the local financial services giant - was forced to cut staff bonuses across the board during its December first quarter.

According to NCB's financial report for the quarter ended December 31, 2008, NCB Capital Market's staff costs were $45.7 million, a dramatic 55 per cent decline from the $102 million it paid to staff during the comparative first quarter in 2007. NCB Capital Market's managing director, Christopher Williams, told Sunday Finance that the massive drop reflected an executive decision to slash employees' annual bonuses after the entity was hit hard with the onslaught of the global economic crisis.

"We didn't pay bonuses because our competitive structure is linked to performance above a hurdle rate," said Williams on Friday, hours after NCB group held its quarterly investor briefing at its corporate headquarters in Kingston.

"The decision was very much aligned with protecting and growing shareholder value and to the extent that we fail to do that, then our compensation is adjusted accordingly," added Williams.

Indeed, when Wall Street collapsed in September, NCB Capital Markets was one of the most adversely affected local entities, particularly due to its exposure to US investment bank Lehman Brothers. NCB Capital Markets, as noted in NCB group's year-end report, had entered into a Master Repurchase arrangements with Lehman in which Government of Jamaica bonds valued at US$44.88 million were pledged as security for the liability of US27.92 million to Lehman. Lehman's eventual bankruptcy resulted in NCB Capital Markets writing off $1.2 billion and making a Net loss of $581 million during the September 2008 quarter.

In a global recession that has ironically seen, some companies overindulge in lavish spending - such as American International Group forking out more than US$440,000 for an executive getaway at a California beach resort a mere days after it was rescued by a US$85-billion bailout - NCB Capital Market's Williams said his company's move to withdraw bonuses was a corporate responsibility.

"That is how we have structured it so that we lead from the front," he said. "From the CEO down, everyone took a (salary) hit."

Further more, the executive said that such a move might save jobs in the difficult environment because the company is now not under significant pressure to cut staff in order to bring operating costs down.

NCB Capital Markets posted a net profit of $483.2 million at the quarter ended December 31, 2008, a marginal increase above the comparable period in 2007 but its operating income declined by 21 per cent to $550 million in a rough market in which investment trading is at a standstill. NCB recorded $20.6 million in gains on asset trading over the quarter, a massive decline from the $72.4 million over the corresponding period the year prior.

"Its a tough environment, we are at war in the capital markets side of the business," noted Williams at the investor briefing. "We managed to pull off a good quarter but the environment continues to be abrasive towards capital-market-type operations because capital market operations are dependent on us being able to get money into an asset class and make money, but all asset classes right now are underperforming."

In light of the challenges the company is likely to face in 2009 as the global recession continues, Williams said that the company will be "careful but not fearful".

"We have basically been adopting a strategy of keeping our expenses tight and we are fortunate in that we have always been a very small, lean operation," said Williams. "What the first quarter demonstrates is that we are working as a management team, staying focused on the job and finding the opportunities although those opportunities are few and far between."

NCB Group posted a net profit of $2.3 billion over the period under review, an increase of 28 per cent over the comparable period in 2007. Earnings per stock unit increased by 28 per cent to $0.97.

Julian Richardson
Jamaica Observer
Sunday, January 25, 2009