Sep 2010 Financial News

Defaulting corporate borrowers gut FCIBJ profit

Sep 08, 2010

FirstCaribbean International Bank Jamaica Limited got slammed in the third quarter ending July 31 by lower revenues and loans gone bad, but squeaked by with a near negligible J$337,000 of profit - J$3.71 million with tax credit or 1.4 cents per share.

A year ago, the third quarter produced J$180 million or 68 cents per share of profit for Jamaica's No. 4 bank.

FirstCaribbean Jamaica wrote off J$315 million in loan losses between May and July, which it said was largely unpaid debt of defaulting corporate borrowers.

The write-off, which tripled the 2009 quarter's J$114 million of impairments, was also equivalent to one third of the J$968 million of net revenue made in the review quarter (3Q 2009: J$1.05b), the bank's last full period under the direction of Managing Director Clovis Metcalfe.

FirstCaribbean Jamaica is now run by Nigel Holness who was promoted from within, effective September 1, but Metcalfe's retirement will not take effect until December 31, allowing for a smooth management transition.

For the full nine-month period, the bank's loan impairments rose to J$364 million, split J$256.2 million to corporate clients and J$107.5 million on the retail portfolio.

In the same period last year, the write-offs were reversed with corporate defaults at J$44.5 million and retail at J$140.5 million.

The loan losses topped with higher non-interest expense, and exacerbated by lower interest and non-interest revenues, took a toll on the bank's bottom line, which shed 51.5 per cent of profit - falling from J$781 million or J$2.94 per share to J$378 million or J$1.42 per share in the nine-month period to July 31.

FirstCaribbean Jamaica generates income from three business segments: retail and wealth management, treasury and trading, and corporate investment banking.

But the Barbados controlled institution banks on its treasury unit for big profit.

Interest revenue for the nine months dropped off by half-a-billion to J$3.42 billion, but the bank was so successful in maintaining a stranglehold on interest expense or the cost of writing the business - cutting it by J$576 million - that it completed the period with a tiny J$51 million gain in net interest income, from J$2.425 billion last year to J$2.477 billion in the review period.

The retail business is currently a loss-maker, posting an operating deficit of J$185 million in the nine-month period, though substantially improved from last year's J$234 million loss, while corporate banking posted operating profit of J$365 million, even if underperforming last year's J$695 million.

Treasury, however, made operating profit of J$1.2 billion, falling marginally below last year's J$1.3 billion.

But FirstCaribbean also reported J$834 million of operating losses under the segment 'other', which watered down operating profit to J$558 million, half the J$1.18 billion made in the 2009 period.

FirstCaribbean Jamaica Chairman, Michael Mansoor, in a message to shareholders, blamed the misfortunes of the bank's clients and its impacted credit portfolio on the prevailing economic downturn.

Mansoor said FirstCaribbean was working with clients to help manage their debt obligations.

The bank's loan portfolio shed J$3.1 billion or nine per cent of value, to close the period at J$32 billion, and was the main contributor to a net J$2.5 billion depletion of the bank's total assets in a year to J$51 billion; while customer deposits fell by five per cent or J$2.2 billion to J$42 billion.

The bank's capital base of J$7.6 billion was marginally improved by J$350 million.


Source:
business@gleanerjm.com
Jamaica Gleaner
Wednesday September 8, 2010

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