Earlier this month, NCB announced a staggering net profit of $10.2 billion from revenues of $35.4 billion for the year ended September 2009, an 18 per cent increase on the prior year. This result comes against the background of a global recession and the severe contraction of the Jamaican economy, making the performance all the more remarkable.

NCB, however, makes most of its earnings from investment securities and not from the more traditional banking avenues of deposits and loans. In fact, its investments portfolio at $167 billion is double that of its loan portfolio.

Loans have been proving problematic for all banks, not just NCB, which reported loan losses of $1 billion for the year under review, more than double last year’s losses. Non-performing loans rose to $2.3 billion. However, the bank reported growth in its corporate and retail loans, which helped to boost interest income.

The undoubted star of NCB’s performance was NCB Capital Markets, the bank’s wealth management arm. It recorded a net profit of $1.7 billion, an increase of 121 per cent on last year, and contributed $2.5 billion to the Group’s operating profit.

Speaking with Caribbean Business Report from NCB’s New Kingston’s headquarters on Trafalgar Road, NCB Capital Markets’ Managing Director Christopher Williams said: “We think we have done a pretty good job of strengthening the organisation over the last 12 months. We have worked hard in ensuring that we build a strong foundation for growth, and the core of that foundation is our operational framework. Having gone through the experience of the Lehman Brothers write-off, we refocused internally and rebuilt the operational and risk management framework. We have now put in place a number of cost efficiencies which are paying dividends.”

Implementing a centralisation strategy

“The next step taken was to establish NCB Wealth Management as the number one asset management player in the country. To do so, Steven Godden was recruited from Pan Caribbean to ensure its yields on its assets are top of the market. The next move was to make clients the top priority, giving even more prominence to the sales channels by greater use of technology,” said Williams.

“We also strengthened our below-the-line marketing because the truth is, with high net worth clients they want to have a more interactive marketing experience rather than just seeing a commercial on TV or an ad in the newspaper,” he added. “They want to shake your hand and know who you are. We also did a lot of sponsorships, more notably golf, shooting and polo. It was important to us that our clients felt us and got to know who we are. The result of these efforts saw our net interest income double month over month between the first six months and the second six months. Also, our repo portfolio grew in excess of $10 billion, representing a 17 per cent growth of the repo book.

“Our centralisation strategy resulted in us reducing our staff complement by some 25 per cent. This was not an attempt to cut costs, rather it was to strengthen operations. This also meant we also happened to reduce costs, so it was a win-win situation for us, ending up with a better operational framework at less cost. We are very proud and happy with that accomplishment,” said Williams.

Regaining Number One status

Last year, NCB Capital Markets’ stature as the leader in its field took some hits and it is now seeking over the next quarter to re-establish itself. The aim now is to be the major contender for the title of best wealth management company in the country. Williams believes that his firm has demonstrated so with its most recent financial performance and strong capital base.

“Our research department is second to none,” he boasted. “For the last two quarters we have won the Jamaica Stock Exchange Research Challenge with two different analysts. We are putting in place the best team in the industry. Our job is to ensure that our clients’ wealth is properly managed and that is where we are coming out swinging this year. It is at this time, during this crisis, that the strength of an NCB distribution network shines, so that whether you are in Kingston or Santa Cruz or Ocho Rios you can get access to NCB Capital Markets.”

A look at the recent financial performances underscores Williams’ point. The smaller boutiques have posted lacklustre results with falling profits, whereas institutions with strong capital bases and a wide distribution network have fared far better. NCB Capital Markets has benefited from the fact that NCB is a household name that is able to spend heavily on above- and below-the-line marketing.

Add to that the fact that NCB is deemed to be a safe institution in these turbulent times and the picture becomes clear. NCB has one of the highest capitalisations in the industry. Another thing that characterises NCB Capital Markets is that it has an aggressive young team that is all about winning. This has been inculcated by its managing director who is unapologetic in his efforts to ensure that NCB Capital Markets is the market leader. The company has put 2008 behind it and is proclaiming that it is back in 2009.

“Our boss Patrick Hylton doesn’t just want us to win the race – he wants us to put some distance between us and our competitors. While everyone is panicking and uttering gloomy pronouncements our young team is calm and stable, confident in the fact that we know that we can perform in any given situation, given our infrastructure,” declared the NCB Capital Markets boss.

The equities market

For some time now the local equities market has been in the doldrums, although this week has seen it roaring back. In fact, the JSE Main Index has added a little over four per cent or 3,300 points since the start of the month to close at around 82,000 yesterday.

NCB Capital Markets is known as a big player in the equities market, so how does it view the situation today?

Williams responded: “The horizon for clients has got to be a lot longer than they would have been exposed to with a fixed-income portfolio.

This means that collective investment schemes such as unit trusts and mutual funds need to be established to drive that market, because the average investment horizon of a client is not as long as what is needed now to sit through this opportunity. I can understand why clients are nervous about the equities market. There is no doubt there are some great buys on the equities market. If you look at our stock price, NCB right now is a great buy. Mind you, there are some companies that have their stock prices going south, but their profits are going north, which doesn’t make any sense, but they are clearly good deals. You have to buy into equities with [at] the very least a five-year horizon. People will typically do that if they are part of a pool. We are looking at that and also looking to take advantage of some of the opportunities on the equities market and share them with our clients. We have continuously led from the front with the stock market and are strong investors in it.

“We have decided to redeem our preference shares because the tax legislation has changed and it is no longer as efficient as ordinary shares are. Furthermore, we are already part of a group that is listed on the JSE so there are no significant advantages from both a brand and corporate governance perspective because we already operate under the rules of the JSE. Therefore, we did not see the need within the group to have two entities listed, so we will redeem our preference shares on the 27th of January 2010.”

Bond prices

With the recent downgrades by the more established rating agencies, bond prices have begun to drop and Williams is a little worried and is keeping his eye on the situation. “We feel that the IMF agreement will happen and once that takes place it will boost confidence and go some way in helping the Government address the challenges it faces,” he said. “It will help to regain some of the lost value in the bond market. There is no doubt that the bond market will remain soft in the immediate future until revenues return and the recession subsides.

“Mind you, in Jamaica we have seen bond prices go up and down so that in itself will not trigger panic. The fundamentals still lie with the Ministry of Finance, such as getting the fiscal deficit down and helping to reduce interest rates, but that is going to take time. We know what has to get done and the minister and the new governor will have to work together.”