May 2015 Financial News

Sagicor considers banking expansion

May 07, 2015

SAGICOR Group’s acquisition of RBC Jamaica (now Sagicor Bank Jamaica) in 2014 at a purchase price of US$84 million and with an acquisition gain of US$29 million has, according to Group President and CEO, Dodridge D Miller, made Sagicor Jamaica an even stronger, more dominant institution in Jamaica but the group has no plans at this time to expand its banking presence in the region.

“We have moved our banking presence from number eight in the (Jamaica) market to number three. It (acquisition) provides a stronger commercial banking base, allowing us to rely less on the repo of Government debt business, which was the core business of (Mutual Bank) that we owned...in 1993 to 2004. Post the IMF regime, that business is not as prevalent as it was at that time.” 

Miller also noted that Sagicor Life Jamaica has approximately one million customers and now with Sagicor Bank Jamaica, “is in a better position to cross-sell a wider range of products and services.” 

Addressing reporters located in Barbados and here in Trinidad and Tobago via a video conference link on April 30 from Sagicor Financial Centre in Port-of-Spain, during which the group’s 2014 results were announced, Miller said the acquisition would further diversify the group’s Jamaica business risk. 

“Prior to the acquisition, our exposure to Jamaica government debt was in the order of 70 percent to 80 percent. It’s now down to just north of 50 percent, with commercial banking risk in terms of loans and other normal banking risk diversifying the overall business risk for Jamaica.” 

“We expect that the bank will be profitable and it will increase the shareholder value. For the first three months of 2015, it has produced profits of US$2.2 million. All normal profits,” Miller added. 

However when asked if the group planned to acquire other regional banking operations, Miller said “not at this point.” 

He explained that an opportunity existed in Jamaica which “is strategic to the growth and development of Jamaica. We have not looked to extend that beyond Jamaica at this point.” 

The following is the Q&A which followed with Miller about why he thinks the time is not yet right for further expansion by Sagicor Group into the Caribbean banking industry: 

Why not expand beyond Jamaica? 

Miller: When we owned Mutual Bank in 1993 to 2004, the concept at that time was to have a different approach to banking, using technology. We actually introduced supermarket banking in Barbados. We looked at moving it across the region to mirror some of our insurance portfolios but what we found was the region was over-banked. The cost of setting up a new institution didn’t justify it at that point. 

We (region) had lots of small banks and we said, okay let’s take a step back and wait to see when the consolidation in the banking industry would occur. Our view is that, that will happen very soon. We’ve taken a strategic decision in Jamaica because an opportunity existed there and we will continue to look and monitor what’s happening across the region in terms of consolidation in the banking space, as it has happened in the insurance space, and we’ll take a decision at that point. 

Where will consolidation take place? 

Miller: I think it’s going to be in all of the islands, to be quite honest. It’s just the nature of this industry and rather than us having lots of small banks, there will be a few, larger institutions. As to who would be the institution to ‘pull the trigger’? I’m not in a position to say at this point. 

There are three Canadian banks in the region. Do you think they are going to sell once again, as part of this consolidation? 

Miller: I really can’t say, to be quite honest. We’ve seen what’s happened in Jamaica but that hasn’t actually gone into the other jurisdictions as yet. So it would be presumptuous of me to say that they’re looking to restructure and sell as they did in the past. But what I can say is that we are positioning ourselves to be a strategic player in the financial services industry, and if those opportunities come up, we will certainly have to look at it. 

If you say there’s going to be consolidation among regional banks, where is that consolidation going to come from, if not by the sale of the Canadian banks? 

Miller: We do have a lot of small banks in the OECS for example, that need to be restructured and it could very well be that, that’s the starting point but who knows? 

You’ve gone back into banking at a time when the Canadian banks in particular have been worried about their exposure in this region. Is this a greater opportunity for indigenous banks in the Caribbean or is it that we may well be moving in at a time when it would not be the most opportune time to do so? There are two sides to that coin. How do you see it? 

Miller: Well, there are three (sides). The first one is that what you’re seeing is a restructuring of costs and that’s how I look at the first instance. When economies are not performing at the same optimal level and revenue growth is not strong, it is natural for institutions to start to trim costs. And so, the restructuring that you’re seeing may very well be addressing that aspect of it. That’s one. 

The second aspect of it, if this is going to be a new trend, in terms of the performance of the economies, what is now restructuring of costs may very well be a restructuring of operations going forward. I can’t really speculate as to that one but that’s the second one. 

And the third piece is that sometimes, when you’re in the right position, when the economies are not doing well and assets are not being sold at their premium value, that’s the time to step in. 

If one of the Canadian banks made their Caribbean operations available for sale, would Sagicor have the financial power, the financial size, to make that acquisition?

Miller: I would say it depends. Opportunities provide funding. So if it is a significant opportunity, that we believe is (beneficial ) to our shareholders, we believe that the funding would be available. You can’t say that we have pockets of money sitting down waiting on but if the opportunity is significant and makes sense for us, and for the region, I’m sure the funding would become available.

Source:
Newsday
Thursday May 7, 2015

http://www.newsday.co.tt/businessday/0,210802.html