By Al Edwards, Business co-ordinator 
Melhado
THE MERGER of Manufacturers Merchant Bank and Sigma has proved a successful fit to date judging by the first yearly financial statements of the new entity Manufacturers Sigma Merchant Bank (MSMB).
President and Chief Executive Officer of MSMB, Peter Melhado at a press briefing held at the Terra Nova, on Tuesday, July 30, pointed out that as at March 31, 2002 the merchant bank had capital of $864 million, compared to pre- combination shareholders' equity of $406 million (MMB) and $302 million (Sigma).
For the period under review, MSMB recorded net profits of $347 million compared to MMB's $105 million. Major contributory factors to this success were the inclusion of the Sigma asset portfolio after the first quarter and a return on average equity of 58 per cent.
Operating profit per employee came in at $3 million. Assets under management for the period under review stood at $24 billion.
Turnover increased from $300 million to $704 million, a 135 per cent increase on the previous year. This contrasts with an 83 per cent growth in costs ($195 million in 2001 to $356 million in 2002) as the bank sought economies of scale primarily in the areas of investment management and asset trading. Shareholder equity account came in at $800 million.
REVENUE BY BUSINESS SEGMENT
Fee Income6 %, Asset Trading-23%, Currency Trading7%, Investment Management Income-29%, Investment Income8%, Loan Interest15%.
At year end, MSMB managed an asset portfolio of $24 billion, evenly split between US$ and J$- denominated securities. The majority of these investments were in Government of Jamaica debt securities, with the minority being other regional sovereigns (Trinidad and Barbados) and Jamaican corporate issues.
Last year, MSMB acquired a portfolio of insurance premium financing (IPF) assets from Industrial Finance Ltd. to strengthen its market share. This acquisition, along with new loans, increased the net loan account from $557 million in 2001 to $977 million in 2002, and revenue from $73 million to $122 million, an increase of 67 per cent.
Despite steadily declining interest rates, investment income grew by 68 per cent from $40 million in 2001 to $67 million in 2002.
Operational costs of doing business fell from 65 per cent of gross revenue last year to 51 per cent this year. Staff related expenditure, the single largest item, doubled with the increase in the volume of business activity and the introduction of a more remunerative profit share scheme for employees.
Shareholders' equity has grown from $142 million five years ago to $864 million as at March 31,2002, a six fold increase. MSMB is now looking to hit the $1 billion mark in capital by the first half of the coming financial year. This is extraordinary considering the bank began its operations some 15 years ago with only J$5 million of capital.
Sigma Unit Trust Managers (SUTM) is the manager of the Sigma Unit Trust Investment Growth Fund, which was launched in 1994. This has now become Jamaica's largest unit Trust with net deposited property of $3.8 billion controlling over 50 per cent of that market.
SUTM operates three segregated portfolios:
An equity portfolio valued at $1.3 billion
A fixed income portfolio valued at $2.4 million
A real estate portfolio valued at $100 million.
The equity portfolio, which targets investors seeking tax free capital gains, had a reasonable year shaped in the main by the financial and economic shocks that characterised 2001. After appreciating by 33 per cent for the first six months, and ended gaining 14.5 per cent for the full year.
The fixed income portfolio returned a strong 16.8 per cent to unit holders in an environment of large swings in interest rates. This portfolio, which targets investors seeking wealth protection, is comprised predominantly of GoJ bonds of varying tenors. For the twelve months of the financial year SUTM made net income of $9.2 million which compares favourably to the $9.77 million made for the previous fifteen month period. Shareholders Equity now amounts to $49.2 million following an average return of equity of 20 per cent.
"We are not a traditional lender but a strong niche lender. By niche I mean we offer the corporates a full range of services. Our strength lies in the Insurance Premium Financial (IPF) market. With the merger with Sigma our unit trust arm is now the market leader and we have seen our private banking arm perform very well with products and services aimed at high end customers," said Mr. Melhado.
"Five years ago dealing in Government Securities was something you kind of did on the side. What we have seen in the last three years is a lot of activity in that area. We feel we are one of the primary players in that market, and very importantly we have a large inventory of Securities," he added.
Between April 1, 2001 and March, 2002, BoJ statistics show that MSMB actually sold more US dollars than anyone else in the market despite the fact that it has a relatively small distribution network.
FEE INCOME
"I read in the newspapers what the financial writers call fee income and to me its a bit of a melange in Jamaica. What we define as fee income is the fees we get for managing portfolios or assets on behalf of clients. That extends to the subsidiary that manages the unit trusts as well as other relationships we have with long term asset managers. We provide these services so they can leverage that expertise without setting something up on their own. This is one of the real attributes that Sigma brought to the merger. Fee income has grown for us over the last financial year," said Mr. Melhado.
He added that the merged entity is in acquisition mode. He said that though the bank was closing in on the $1 billion capital mark, over the next couple of years that was still a little short of where the bank wants to be.
"Even though we had good profits this year, internal growth is something that will take some time. There are possibilities out there, as you know there has been some consolidation in the sector with the merchant banks falling from 33 five years ago to 10 players. It is a case now that size really matters. There will be further consolidation and hopefully we will be a part of that," he said.
Mr. Melhado said that the up-coming general election should have little impact on banking operations. "This is a little different than what I have seen in the past. People feel that both major parties have pretty much the same economic agenda, with no dramatic change of the financial framework. I think Mr. Seaga was quoted as saying we will be doing exactly what Omar does but just a little bit better."
