Cornerstone Financial Holdings Limited has begun its plans to restructure its financial subsidiaries under a scheme of arrangement to establish a corporate structure that is in compliance with the Banking Services Act (2014).

Cornerstone United Holdings Jamaica Limited (CUHJ) had its first hearing in the Supreme Court of Jamaica on February 20 before Justice Stephane Jackson-Haisley, where it sought an application to convene a meeting. According to the claim form, which was filed on December 15, this claim is being done pursuant to its proposed reorganisation, which will see Barita Financial Group Limited becoming the licensed financial holding company (FHC) of all financial interests held by the Cornerstone Group.

As part of this proposed reorganisation, Cornerstone United’s share capital would be reduced by 81,733,793 ordinary shares except for one ordinary share which would be retained by its founder, president, and Chief Executive Officer (CEO) Paul Simpson. Following this event, Cornerstone Financial would assume all the assets and liabilities, including the capital reserves of Cornerstone United. Once all these events have been completed, Cornerstone United would be struck off the Register of Companies without winding up. Cornerstone United owns 100 per cent of Cornerstone Trust & Merchant Bank Limited while Cornerstone Financial Holdings owns 75.3371 per cent of Barita Investments Limited.

Alongside the reorganisation between those two Cornerstone companies, Cornerstone Financial Holdings’ ordinary shares held in Barita and Cornerstone Trust & Merchant Bank would be cancelled and an equivalent number of shares in both of these companies would subsequently be issued to Barita Financial Group. Barita Financial Group would then issue and allot 81,733,792 shares to Cornerstone Financial Holdings. Barita Financial Group was incorporated on September 15, 2023, at the Companies Office of Jamaica with company number 120977. Cornerstone Financial Holdings Limited owns 100 per cent of Barita Financial Group.

Cornerstone Financial is currently seeking to raise $2 billion and US$12 million ($1.86 billion) in the debt market to consider further investments which includes potential acquisitions. These debt instruments are quoted at 12 per cent for the Jamaican dollar portion maturing in 2034 and 8.75 per cent for the other amount maturing in 2031. Cornerstone Financial received a Caricris rating of CariBBB+ and CariBBB recently with the notes highlighting Productive Active Solutions Limited being the largest shareholder with a 42.2 per cent.

The reorganisation of the different Cornerstone entities will see Cornerstone United Holdings’ staff and team become executives of Barita Financial Group. The reorganisation of the Cornerstone Group to have a FHC is the latest in a series of events taking place in the Jamaican financial landscape. JMMB Group Limited (JMMBGL) reorganised its financial subsidiaries under JMMB Financial Holdings Limited (JMMBFH) in March 2023. Subsequently, JMMBFH became the parent company of Jamaica Money Market Brokers (Trinidad and Tobago) Limited, the holding company of the JMMB financial subsidiaries, on February 16.

Merchant Bank earnings climb

Cornerstone Trust & Merchant Bank had a strong 2023 financial year as it grew net interest income and other revenue by 34 per cent to $457.17 million, driven by larger interest income on loans and bank deposits. However, operating expenses jumped 51 per cent to $440.70 million which resulted in profit before tax decreasing by two thirds to $16.47 million. Net profit was up 308 per cent to $22.26 million due to a tax credit.

Total assets at the end of September stood at $7.88 billion with loans receivables at $3.94 billion and cash at $1.04 billion. Total liabilities decreased five per cent to $3.34 billion with equity marginally increasing to $4.48 billion. Cornerstone Trust’ balance sheet for December showed total assets rising to $7.92 billion with equity decreasing to $4.46 billion.

Higher rates drag Barita earnings

Barita Investments’ first quarter was impacted by higher interest rates which saw its net operating revenue dip 45 per cent to $1.32 billion as its net interest income and gain on investment activities fell. Although operating expenses shrunk 36 per cent to $695.61 million due to the reversal of impairment losses, its staff costs grew 23 per cent to $442.65 million largely due to one-time separation costs in December. Nearly 40 roles were separated/made redundant under restructuring across the Cornerstone Group, a recurring theme seen across the financial sector in recent months.

Despite this dip in operational expenses, operating profit decreased 53 per cent to $626.87 million. After accounting for lower taxes and a higher share of profit from its associate Derrimon Trading, net profit declined 55 per cent to $479.32 million with earnings per share of $0.40.

Barita’s total assets marginally grew during the quarter to $128.73 billion with pledged assets at $83.02 billion and marketable securities valued at $19.25 billion. Total liabilities stood at $92.03 billion with the company repaying $3.19 billion of debt during the quarter with shareholders equity increasing to $36.70 billion, equivalent to a book value of $30.59.

Barita’s share price closed Tuesday at $70.88 which gave it a market capitalisation of $86.50 billion. Barita paid a dividend of $1.634 totalling $1.99 billion on February 2 to shareholders on record as of January 23. Barita Investments injected $2 billion of fresh equity into its subsidiary Barita Unit Trust Management Limited on August 31.

Barita Investments will have its earnings call today at 2 pm online. Today is also the day that Barita should submit its 2023 annual report to the JSE.

“We have been consistent in communicating our strategy and intentions, and we have demonstrated our commitment to executing that strategy faithfully. Despite the challenges posed by a difficult operating environment, our significant investments in transforming our business model together with our continued robust capitalization gives us confidence in our ability and capacity to thrive in any market environment,” said Chairman Mark Myers in his outlook.