Jamaica Money Market Brokers in its unaudited six-month financial results came close to tripling its net profit to $1.1 billion, despite a write-down of $1.9 billion on its investment portfolio from holdings with failed US investment bank, Lehman Brothers.

The over 100 per cent increase in net profit when compared to the previous period resulted from a realized gain of $2.3 billion from the sale of the company's 45 per cent stake in associated companies CMMB Barbados Limited and CMMB Securities Limited in September, which offset impairment on bondholdings.

The adjustment was seen as a prudent move by analysts.

"Given the global environment and asset prices coming off sharply leading up to September 30, JMMB has booked a $1.8 billion loss due to impairment loss on financial assets. We view this as being prudent, that is booking all or a majority upfront," said Mark Croskery, president and chief executive officer of the private securities dealer Stocks & Securities Ltd.

100 per cent increase

For the quarter group, net profit amounted to $758 million, giving a similar increase of more than 100 per cent for the six-month period in comparison to last year.

Earnings per share for the reporting period grew to $0.52 and $0.77 for the quarter and half year respectively.

But when the one-off events - the sale and write-down - are stripped from the numbers, JMMB profit still grew, though only by 18 per cent, according to one analyst.

"The returns presented are respectable even in light of the inclusion of the sale of their stake in CMMB, which was essentially set off by the provision made for the impairment of their bond holdings," said Christopher Chin-Loy, head of structured products and stockbrokerage services at Scotia DBG investments.

"Omitting these extraordinary items, the company only made an 18.08 per cent

increase as opposed to their reported 139.6 per cent," he said.

For both the three-month and six-month period the company also managed to grow its net interest income to $503 million and $993 million respectively.

"JMMB's performance is reflective of the general conditions in the financial markets. Due to the gradual increase in interest rates and the migration of liquidity to safer asset classes they have been able to grow their net interest income by 44 per cent which is good, but comparable to what we have seen done by other investment companies in Jamaica," said Jason Dear, equity trading manager at First Global Financial Services Ltd.

While the growth in net interest income resulted in an upward movement for the company's operating revenue, for the first half of the financial year, at $1.5 billion, the quarter was down by 12 per cent.

Hikes in administrative expenses had a dampening effect on operating profit, which reflected significant decline for both the quarter and six-month results.

Within the quarter administrative expense moved to $618 million at the end of September compared to $521.8 million generated for the similar period in 2007, bringing operating profit to $50 million.

"For quarter over quarter for the period ended September 2008, versus, 2007, operating profit is down 79 per cent," remarked Croskery.

gains declined

The six-month figures showed operating profits moving from $443 million to $288 million, a decline of 35 per cent, resulting from a decrease of 24 per cent in administrative expense.

JMMB attributed the increases in administrative expense to planned increase in staff costs as well as inflationary pressures.

Declines were also reflected in gains on securities trading as well as fees and commission income, which according to analyst is in line with the current market conditions.

"Like many of the other financial companies, it has become harder and harder for JMMB to make any significant gains on trading or fees/commissions earned due to the softness in the global equities markets," said Dear.

Notwithstanding the write-down of $1.9 billion, JMMB maintained that it is well capitalised, given 'capital to total assets' ratio of 7.4 per cent compared to the regulatory benchmark of 6.0 per cent.

Its capital to risk weighted assets ratio is at 43.5 per cent whereas the FSC benchmark stipulates a minimum of 14 per cent.

JMMB's capital base now stands at $5.6 billion and, according to one analyst, the stock is again seen as a long-term buy.

"Trading with a PE of under 10, now having more cash on their books, and the potential for them to move into other markets outside of Jamaica, and into varying business/product lines, JMMB could be a stock to watch and possibly a good long-term buy," said Dear.

But with the stock last traded at $8.30 at the close of trade on Wednesday at least one analyst's preference for the stock is negative.

"Utilising trailing price multiples, we think JMMB at 8.30/share is expensive, and continue to prefer the local banks, Scotia and NCBJ from a valuation standpoint and business model standpoint in regards to loan interest income and fee income," Croskery said then.

four strategic imperatives

JMMB has laid its foundation for the next 15 years in four strategic imperatives that will drive sustainable growth for the group: growing its asset management and brokering business, particularly investment and pension fund management; consumer, commercial and corporate financing; and greenfield expansion.

The company already has holdings in the Dominican Republic through JMMB BDI America, with planned expansions further into Central America.

Already involved in commercial banking in Trinidad, JMMB plans to extend that side of its operation into Jamaica, though not through the same vehicle, and is awaiting central bank approval on its application.

Associated companies contributed approximately $332 million and $182 million respectively to the Group's profit for the six-month and three-month reporting periods.

sabrina.gordon@gleanerjm.com