MANUFACTURERS Sigma Merchant Bank, which was created two years ago from the merger of two financial institutions, is to forge another merge partnership — with Pan Caribbean Financial Services (PCFS) to create a $35 billion asset-base institution.

Both companies will bring to the table their subsidiaries — Pan Caribbean Merchant Bank, and Manufacturers Sigma Investment Management Limited, a joint statement from the companies said yesterday evening.

“The agreement is subject to final agreement of the relative values of the respective entities, due diligence by both parties, the approval of the regulatory authorities and the minister of finance as well as ratification at an extraordinary general meeting of the shareholders of PCFS to be held later this year,” the companies said yesterday.

A two-month time table has been set for full consummation of the deal.

The directors said that the merger, by creating a financial entity with capital base of $2.5 billion, and assets of $35 billion, would allow the enlarged entity to be more competitive in the current environment. The merger, they argued, would create a more efficient, productive and growth-oriented entity that would boast a strong professional and management team.

“This merger will be a significant milestone in the development of our financial industry and of considerable benefit to both our stockholders and customers,” said Richard Byles, the chairman of PCFS.

PCFS, which trades on the Jamaica Stock exchange, is a subsidiary of the Pan Jamaican Group of Companies, which is also listed.

On the other hand, Manufacturers Sigma, which was created from the merger of Manufacturers Merchant Bank and Sigma Investments in 2001, is privately held. It is principally owned by the Matalon family, OK Melhado and family and Clifton Cameron. It is chaired by Joseph M Matalon, while Peter Melhado is president.

The merger of its banking arm now being pursued by Pan Jamaican Group will, if consummated, be its second in a few months. Just a few weeks ago, another of its subsidiaries — Hardware and Lumber/True Value — was merged with Grace Kennedy’s Rapid & Sheffield in a deal in which Rapid & Sheffield became the senior partner.

Matalon said yesterday that he was driven to the merger table, in part, because of the positive experience that his company — Sigma Investment Management systems — had had with the merger with Manufacturers.

“The merger of Manufacturers and Sigma, completed in 2001, has far exceeded our expectations,” said Matalon. “We have seen the value created from the merger in the services we have been able to provide to our customers. We are now poised to take another very important step. We think that Pan Caribbean will be an excellent partner in our mutual goal to consistently deliver value to our customers.”

To effect the merger, PCFS — the listed entity — will simply issue shares to the privately-held Manufacturers Sigma.

It was not immediately clear last night how the merger would affect plans that Peter Melhado had publicly outlined in May this year to take his company public “in the near future”.

The merger would make this entity the largest merchant bank in Jamaica, both in terms of assets, capital, and profit.

It is being effected at a time when Bank of Jamaican regulations now require commercial and merchant banks to split their investment operations from their core banking functions. In this model, the BOJ would regulate the strict banking operation while the investment arm is to be regulated by the Financial Services Commission.

Several banks, including Manufacturers Sigma, have already begun to make the change and to inform their customers.

The new regulation will force banks to split their capital in order to capitalise two separate entities. But by combining their capital, Manufacturers/Pan Caribbean will be able to operate two strongly capitalised institutions — the bank and the investment arm.