Small exposure to the Lehman collapse - JMMB

Published: Friday September 19, 2008

Jamaica Money Market Brokers (JMMB), the island's third largest securities trader, estimates that about three per cent of the company's own-account investment portfolio is exposed to last weekend's collapse of the US investment bank, Lehman Brothers.

However, billions of dollars managed on behalf of clients, such as pension schemes, are not part of this mix and are inoculated against a Lehman contagion, JMMB indicated.

But even as he acknowledged the risk - from which, most other brokerages surveyed by the Financial Gleaner surprisingly claimed to be free - JMMB's boss, Keith Duncan, told shareholders Wednesday that he expected no more than one per cent, or even less, of the exposure to be realised. Such a hit, if it happens, could comfortably be absorbed by the group's healthy balance sheet, which, at the end of March boasted shareholders equity of $6.6 billion.

"In terms of what will happen, that will unfold over time," Duncan said at the company's annual general meeting for the financial year that ended March 31. "But we would expect that the realised value will reduce the level of exposure to about one per cent of our total investment portfolio."

At the end of March, JMMB's investment portfolio stood at $85.6 billion, a 12 per cent rise on the previous year. At the time, the company's assets were $102 billion, up nearly 14 per cent from the previous year. In the quarter to June assets grew by a further 12 per cent to $114 billion.

Group investment total

Lehman and other American investment banks, market watchers say, had aggressively sought clients in Jamaica, raising concerns about a broader exposure to losses, causing Finance Minister Audley Shaw to call for an audit of potential risk by the central bank and the Financial Services Commission (FSC), the agency that regulates securities traders.

"Our analysis is in process," said Nadene Newsome, the head of information at the FSC.

Bank of Jamaica governor Derick Latitbeaudiere told the Financial Gleaner that the situation appeared reasonably good for that segment of the financial sector, banks and near banks, regulated by his agency.

"For the banking system there is no exposure that we can discern, for the securities industry not many," Latibeaudiere said.

For the BoJ itself, the potential risk would have been to the reserves, but according to the governor there was "no exposure there as nothing was invested with them".

"Overall, our exposure to this entity has been relatively minimal, we are not seriously affected as other countries or entities," he said.

Curt responses

Mainly, brokerage houses said they had none or little exposure to Lehman and, presumably, other wobbly investment banks, but were mostly curt in their responses.

"We have no credit exposure to Lehman," said Christopher Williams, the head of NCB Capital Markets, a subsidiary of National Commercial Bank.

He declined to discuss in any detail what kind of relationship, if any, NCB Capital Markets might have had with the fallen investment bank.

However, Wednesday night, Dennis Cohen, the deputy managing director of NCB Group, appeared to suggest that, like JMMB, it too might have own-account cash, as opposed to funds under management, in what are now troubled foreign investment banks.

Cohen, appearing at a briefing hosted by another investment house, Mayberry Ltd, was asked about the portfolio and market mix of the $65 billion that NCB Capital markets has under management.

While saying he could not have given specific break-outs, Cohen insisted that customers funds were mostly in regular, essentially safe market instruments, rather than being tied up "in exotic assets".

"And to the extent that we have funds invested overseas what you would have there is our proprietary capital funding, and not that our customers are directly exposed," Cohen said.

'Exposure is nil'

Barita Investments, however, was clear, it will bear no burden from Lehman's bankruptcy.

"Direct exposure is nil," said Sonia Owens, Barita's trading and investment manager. "No investment was being held with them."

Said Phillip Armstrong, deputy CEO of Pan Caribbean Bank: "We have no credit exposure. We had a custody account, but that was moved some time ago."

JMMB's Duncan said that he expected no impact on his company's core business, from the likely Lehman hiccup and he told shareholders that the group was expecting its diversified business strategy to continue to deliver.

"When there is an impact in one area of the business, we expect others to continue to perform," he said. "We expect retail to perform, corporate solutions to continue growth and high-level money market associate companies to continue their performance."


Source:
Sabrina Gordon
Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20080919/business/business1.html
sabrina.gordon@gleanerjm.com