NCB Jamaica to sell
its non-banking portfolio

In the face of a revaluation of the Jamaican dollar and a tighter money supply, NCB Jamaica loses J$857.6M and veteran banker Don Crawford makes a bid to retake Century National.

Fallout from the crisis in the Jamaican financial markets continues to affect other banking institutions in Jamaica apart from the bankrupt Century National Bank, as the National Commercial Bank (NCB) Group announced plans to sell the majority of its the majority of its hotel, real estate and agricultural businesses by year end. The plan is part of a bid to re-focus the company on its financial services.

The decision to concentrate on core banking and other financial services was announced in mid-August, as the Group revealed record losses of J$857.6M for the 9 months to June 30, 1996, compared with a profit of almost $400 million in the same period last year.

According to NCB's Group managing director, Dunbar McFarlane and group accountant, Michelle Boorasingh, at a press conference in New Kingston last month, its banking arm was still profitable. Managing Director of commercial banking, Rex James, stressed that the Group's results should not be confused with the bank's. He said however, that commercial banking profits fell over the period from J$557 million to just J$52 million, so the group was unable to absorb the losses of the non-banking business. The bank was hit in the third quarter by redundancy costs and a J$125 million foreign exchange loss.

The Bank keeps between US$38 million and US$50 million on deposit and suffered when the Jamaican dollar revalued against its US counterpart earlier in the year from approximately from $40 to $35. In providing the reassurance of the Bank's prudential strength, James stressed that the Bank had enough cash resources to pay two-thirds of its depositors without calling in a single loan.
NCB has taken a decision to provide in its accounts for any foreseeable problems and said the move should put it on a sound footing for the future, as it heads towards the merger of National Commercial Bank with Mutual Security Bank (MSB) at the beginning of October. NCB's decision is more significant as it comes on the heels of the recent problems at the Century Financial Group which was reported in a previous issue of EXECUTIVE TIME. This also puts pressure on other financial-based conglomerate groups to drop their non-core operations leaving business and investing to the business sector, and focus their attention on banking.
The move could also significantly boost the real estate sector as the bank seeks to dispose of assets worth hundreds of millions of dollars at reduced prices.

However, restructuring the Group and selling off operations such as Jamaica Orange, a 2,000-acre plantation established in 1992, may take up to three years to complete. McFarlane said the company would not be forced into fire sales, but it has written down operations to reasonable values.
NCB Investments, the holding company for properties such as the Wyndham Kingston Hotel and St. Jago Shopping Centre in Spanish Town, St. Catherine, will now look to dispose of its properties at market values, rather than hold out for the high prices the properties may be on the books for.

Another $158 million for loan provisions were also included in the figures. The group has a loan portfolio of $20.7 billion and has now set aside $920.4 million for loan provisions. In an attempt to ensure that it does not have to utilise the $920 million, the Group has set up a special bad debt unit, which has been given three years to raise $750 million from the bad debt portfolio. Apart from currency fluctuations, the Group suffered a huge decline in profits as increased competition increased the cost of raising capital from $3.71 billion to $6.27 billion. Revenue over the period rose from $7.78 billion to $10.2 billion, as the Group increased its income from loans and securities.
Interest is now $1.3 billion more than loan income of $5 billion. In essence, loan income combined with income returns on real estate and hotel holdings did not grow fast enough to compensate for the bank's higher interest costs - the cost of borrowing money from other organisations and depositors to fund its operations.

The jump in deposit interest and reduced profits are the clearest signals yet of the pain commercial banks are feeling following the Bank of Jamaica's (BoJ) decision to control the money supply more tightly, as well as high interest rates. With a commercial bank, merchant bank and property investment company to finance, as well as almost $1 billion in doubtful debts, the Group's revenue growth is having trouble keeping pace with the high cost of borrowing money. The sale proceeds of non-banking assets will presumably be used to reduce borrowings and other liabilities. Unconfirmed reports up to press time suggest that Finance Minister, Dr. Omar Davies, has decided to re-open the three closed Century National financial institutions, but under new management. If the Minister approves, the financial group comprising Century National Bank (CNB), Century Building Society and Century Merchant Bank may be opening its doors by early October, when the current 60-day period of the temporary management team ends.

Dr. Davies has been under increasing pressure from all sides to make a quick decision, but he has, so far, resisted. Among the deciding factors was thought to be representations from several international bodies, affected by the closure and the impact it had overseas, given that CNB has a substantial number of foreign exchange depositors. The United States Agency for International Development (USAID) revealed recently that it is also keen to see a resolution of the bank's problems. Its financial controller, Michael Hase, said USAID was owed some $194 million by Century. Hase added that USAID has not been pressuring the Minister to re-open the bank, but they were confident of a "satisfactory resolution."
Another proposal was made by a New York based investment firm, The National Financial Investment Marketing Group, (NFIMG) which was willing to invest up to US$100M into the bank if former Chairman Don Crawford remains at the helm. A spokesman for the Group, which is based on Wall Street, said the investment bank represented two institutional investors interested in doing business in Jamaica.

NFIMG investment banker Kenny Johnson, met Finance Minister Davies in early September to begin negotiations. He said his firm had written to Davies suggesting that it put between US$75 million to US$100 million into CNB, but had not received a reply. Davies was unavailable to confirm this offer.
Johnson said his company had introduced Crawford to several Jamaicans residing in the US, who deposited money at Century and added that his investors wanted to support Crawford and Caribbean financial stability.
But if Crawford wants to retake his fallen bank it will not be easy. The report of the bank's operations submitted by temporary manager, Richard Downer shows a tale of mis-management and mis-appropriation of funds throughout the banks operations. Downer added that misleading information was routinely put forward by directors about the bank's operations.
When asked if he was aware that the Minister had already said that the previous management would have no part in the future running of the bank, Johnson replied, "We like Mr Crawford and want him to be in control."

A dismal picture of liabilities far exceeding the assets was painted and depositors may not get 100 percent of their savings. The financial settlement following the Blaise failure was 90 cents on the dollar, but depositors will be lucky to get 70 cents on the dollar, claimed one senior banker involved inn the reorganisation. Despite this lack of confidence in Crawford by Government, a depositors' meeting at the St George's College voted to reject the proposal made by Finance Minister Davies which offered 90 per cent back to depositors with up to $40,000 and between 10 and 90 per cent for depositors with more than $40,000. The meeting was called by the United Consumers In Action (UCIA) along with the Association for Returning Residents (ARR). Percival Latouche, president of ARR told The Gleaner that the ideal position is to re-open the bank with Don Crawford at the head, if it means getting back 100 percent of their deposit.

If the operations are re-opened, it is not yet clear how the Minister of Finance and the central bank will stop a run on deposits. One option could be to limit depositor withdrawals and the central bank could turn the $4.3 billion, owed when it seized control, into equity or even pledge to deposit more of its own securities in the new operation as a sign of future confidence.

Former CNB chief executive, Don Crawford, said he was aware of the decision to re-open the financial institutions. He added that he had no official confirmation or contact with the Finance Minister or temporary manager, Richard Downer. If Crawford loses eventual control of the Bank, it is not yet clear who will be his replacement. Leading the list of prospective bankers is Barbadian Harry Russell, who is a liability specialist and has been working at CNB in recent weeks, helping Downer, a senior partner at Price Waterhouse, unravel the complex web of ownership arrangements, cross-company guarantees and liabilities among the commercial bank, building society and merchant banking operations. When the decision was made to take control of the three CNB financial institutions on July 10, the bank's assets fell short of its liabilities by $1.26 billion, according to published figures. However, further investigations revealed a substantially worse position. In December 1995, the bank's asset base was $6.6 billion. Liabilities in the Bank alone were now said to be "several billion" dollars in excess of this, according to one source. To salvage what was left of the Bank, Government sources reveal that the most likely scenario is to establish two financial institutions, one to handle the bank's profitable assets and the other to handle non-performing loans.
The institution handling the profitable assets will resume operations as a normal bank, while the other will mainly be involved in debt collection and the sale of low return assets. Splitting the assets and liabilities in this way would allow both the doors of the bank to be reopened and CNB's problems to be managed in an effective long-term manner. Price Waterhouse, which initially suggested the plan, said it would take at least three years for the bank handling the non-performing loans to work through most of its difficulties.

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