Market thumbs nose at NCB turmoil
Amid turmoil at Jamaica’s largest banking conglomerate, a $2 trillion behemoth that has the potential to hobble the Jamaican economy were the business to falter, stock market investors digested the sudden and unexplained departure of the top leaders of NCB Financial Group Limited – and yawned.
On Tuesday, the stock actually gained in value at the Harbour Street-based stock exchange, notwithstanding uncertainty over the fallout that has seen Patrick Hylton, the man at the helm for two decades, and his top lieutenant Dennis Cohen going off on leave.
Just last year, the two men set a new historic record at the banking group, delivering unprecedented profit of nearly $40 billion in that year alone.
Chairman Michael Lee-Chin has not responded to requests for comment on the upheavals, and what prompted them.
But elsewhere on the Kingston waterfront, signs that the developments at NCB Financial were worrisome was emanating from the central bank.
Last night Bank of Jamaica issued a statement attempting to reassure Jamaicans and overseas markets that the entities within the group, which includes National Commercial Bank Jamaica, Guardian Holdings Limited of Trinidad, NCB Capital Markets, were “profitable, strong, safe, and sound and possess sufficient capital and liquidity”.
The NCBFG stock closed up by 25 cents or by 0.38 per cent on Tuesday, on moderate volume trades, to regain the five cents shed on Monday when the news first began to percolate. Still, the stock at $65.33 is well off its one-year $100 high, and is down more than 18 per cent year to date. The Guardian stock also gained 0.23 per cent on the Kingston exchange on Tuesday to close at $400.93 per share.
In Trinidad, however, there has been no trading in NCBFG shares in Port of Spain for a full week, but GHL fell by 3.49 per cent to close at TT$18 per share on Tuesday.
NCB Financial has issued two anodyne statements about the leadership changes, one of which indicated that Lee-Chin, a billionaire investor and the primary beneficial owner of NCB, intended to assume an operational role in the banking group.
But as to the expected duration, neither Lee-Chin nor NCB Financial has said how long his stint as an executive would last.
Questions about NCB Financial began swirling at the end of May when the company made a surprise announcement that Lee-Chin was taking a leave of absence from the boards of the banking group and its subsidiaries to take care of other business. The chairmanship of NCB Financial fell to Prof Alvin Wint in the interim.
Then without warning, Lee-Chin re-emerged a month earlier than expected, and NCB Financial concurrently announced that Hylton and Cohen had gone on leave for three weeks, effective July 18, but would be replaced permanently thereafter.
The two men had been focussed on shoring up the capital base of the banking group, which has been swayed by market turbulence and more recently, accounting changes that affected the insurance operations of the group.
The most dramatic action they have taken to safeguard capital was the curtailment of dividends, which ranged between $1.2 billion and $2.4 billion in payouts to shareholders per quarter up to early-2021.
NCB Financial has attempted to soothe the market with the assurance that, notwithstanding the leadership upheaval, the primary entities in the group continue to be led by strong managers, namely, Septimus ‘Bob’ Blake as CEO of National Commercial Bank Jamaica; Ian Chinapoo as Group CEO of Guardian Holdings Limited and Ian Truran as CEO of Clarien Bank Limited, which is based in Bermuda.
Hylton and Cohen are both directors on the boards of NCBFG and Guardian Holdings. Hylton is also chairman of the latter company. Up to last night, there was no word about about their tenure in those seats.
Hylton has been the head of NCB since December 2004, starting in an acting capacity as replacement for Aubyn Hill who resigned unexpectedly after two years as managing director.
But Hylton’s dealings with Lee-Chin preceded his recruitment, having been the man at the helm of Finsac when the government sold the bailed out bank to the billionaire in the wake of the financial sector crash.
In the face of that deal, Hylton later came under pressure at the Finsac hearings in 2011 when he was asked to defend the transaction and what was perceived as a conflict with him ending up running a bank he sold just a few years later. Hylton pushed back robustly at the line of questioning and held firm that the entire deal had been above board.
The deal Hylton negotiated with Lee-Chin was valued at US$127 million, which gave the billionaire investor a 76 per cent stake in the bank. The monies were payable over nine years.
Under Hylton’s tenure as head of NCB, the banking group eventually overtook Scotiabank Jamaica as the largest banking outfit in both asset size and profits.
In 2018, Hylton created history when he helmed the bank to unprecedented profit of $28 billion, but that has since paled in comparison to the $39.9 billion of profit reported at year ending September 2022.
As of March, the group’s asset base was estimated at $2.13 trillion, up from $2.06 trillion in a year. The flagship commercial bank accounts for about $1 trillion of the group’s total assets; while among the eight commercial banks licensed and supervised by the Bank of Jamaica, NCB Jamaica alone accounts for over 39 per cent of total sector assets.
Its capital base, meanwhile, is climbing once again having risen from $202 billion to $229 billion.
Notwithstanding its improved book value and the historic profits achieved last year, NCB Financial continues to safeguard its capital as a buffer against shocks, and has paid no dividends.
Prior to the coronavirus pandemic, the banking conglomerate was constant in its distributions to shareholders, which hit a record of $8.3 billion in FY2019. Most of those funds would have flowed to Lee-Chin and his companies.
Having issued its assurance that financial entities held by NCB Financial Group were performing above their regulatory requirements, the central bank went further last night to “underscores its commitment to continuous robust supervision” of all banking institutions and their holding companies “with a focus on risk-based assessments, including ensuring that satisfactory corporate governance arrangements are in place at all licensees.”