Chris Williams, managing director of NCB Capital Markets, has launched a new marketing campaign in 2009 to reach high net worth clients.
Sobered by a J$1.23 billion write-down last summer and a substantial decline in profit performance, NCB Capital Markets Limited (NCBCM) is promising to place new limits to its use of leverage and adopt a far more conservative approach to risky bets.
The Jamaican brokerage made a loss on its foreign portfolio when investment bank Lehman Brothers Group failed last September. NCBCM's exposure was related to 'master repurchase' arrangements with the New York-based bank under which it had pledged bonds valued at about US$44.9 million for its liability of US$27.92 million to Lehman.
Consequently, NCB Capital Markets made a net loss of J$581.3 million in its fourth quarter ending September 2008, while profit for the year was truncated by 50.5 per cent, falling from $1.57 billion in 2007 to $776 million at year end September 2008.
In the first quarter ending December 2008, the brokerage regained some of its footing, returning profit of $483.2 million or 40 cents per share, a 16 per cent gain relative to the December 2007 quarter when it made $416.7 million or 35 cents per share.
It paid dividends of 17.625 cents per share in January on its 350.77 million of NCBCM 11.75 per cent issued preference shares - a total payout of $61.8 million.
"The Lehman exposure resulted from our taking leverage from Lehman Brothers and allowing them to hold all Government of Jamaica bonds as security for that leverage," said Christopher Williams, managing director of NCBCM, at the company's annual general meeting Tuesday.
"That created a counter party risk in the form of the excess between what we borrow from them and what we placed with them for security for the loan and that counter party risk we feel is an area that we have to focus on greater going forward."
Williams now says the company has made a decision not to use leverage as aggressively as it did in the past.
"We will operate at a much lower haircut of capital than what is required by our regulators," he said.
The Financial Services Commission allows securities dealers to leverage up to 20 times their capital. Williams said starting now he would stick to a conservative eight times capital.
He also told holders of the company's preference stock that Lehman experience has also forced the brokerage to merge its treasury operations with that of its parent, National Commercial Bank of Jamaica.
"What that does for us is to utilise better the strength of the NCB balance sheet right across all subsidiaries within the group, including NCB Capital Markets, and we expect that will help us to better manage our asset yields and as a result improve our net interest income," he said.
The subsidiary company, which is the wealth management arm of NCB, is also strengthening its investment management functions, said Williams, who admitted that the company was a bit thin at senior management level.
The management vacancies have caught the attention of ratings agencies, which in NCBCM's last credit review, pointed to it as a weakness in the operation.
Since then, the brokerage has recruited a new vice-president of investment and training who will take up his position in April, while at the same time restructuring the office of chief operating officer and shifting the functions to other areas within the group.
The new VP recruit is replacement for Karlene Bailey who resigned as VP-investments last October.
Williams said NCB Capital Markets has made adjustments to its sales force to ensure greater customer contacts through the lowering of its client/wealth advisor ratio from 600 to 300 clients per advisor.
The company also added six customer relations officers or CROs in this area and will, he said, be recruiting more throughout the year.
"Each individual CRO or wealth advisor who is a representative of the organisation will have a smaller number of clients to manage therefore increasing the ability for them to contact and dialogue with the client," he said.
Meanwhile, Williams told the Financial Gleaner that given the global crisis, the company would be moving forward more responsibly in 2009.
"We are in the business of taking risk, that is what the financial institution does. We can't stop taking risks but we have to be responsible; we can't ignore the lessons of 07/08," he said.
"The fact that we got caught - as one of the few local institutions to have custodial relationships with Lehman Brothers _ is something we have to learn from and respond to," he said.
dionne.rose@gleanerjm.com