BARITA Investments reports strong performance in the April to June period of this year and is already preparing its strategy to continue its earnings growth, with Bank of Jamaica (BOJ) starting its rate cuts as of today.

Ramon Small-Ferguson, CEO of Barita Investments, speaking with the Jamaica Observer ahead of Bank of Jamaica announcing its rate cut — but expecting the cut was imminent and “informed by a good bit of data”— said, “[An interest rate cut] could present opportunities for further growth in net interest margins and, by extension, net interest income,” Small-Ferguson outlined.

Speaking broadly, Small-Ferguson said, “The lower rate environment accompanied by easier monetary policy could have positive effects on financial markets, and given that Barita is heavily exposed to marketable securities such as equities and fixed income, positive movements in those values [from lower interest rates] would positively impact trading revenues.”

Small-Ferguson added that fund management products such as unit trusts are likely benefit from the rate cut.

“What we have seen over the last several quarters is more conservationism amongst investors who have moved to more fixed income products, and a move away from more variable return products like unit trusts. We could see a resumption in growth in the unit trust market in general, which would be positive for companies that operate those types of business like ours.”

But looking ahead, Small-Ferguson is seeking to leverage whatever market conditions are present to come out on the right side of earnings for the company’s clients, staff and shareholders.

So far, Barita has reported a strong April to June, helping it to report net operating revenues reaching $7 billion over the full nine months of its financial year that started last October and ended June 30. The revenue outturn [quarter] is up 11 per cent due mainly to “a resurgence in what we are calling ‘traditional revenues’ from trading, treasury and brokerage business lines”. The company also managed to cut operational expenses by 23 per cent, due to employment of more technology and a restructuring exercise that ended with about 10 per cent of the staff separated from the company.

“The combination of the two — the 11 per cent increase in revenues and 23 per cent reduction in expenses — resulted in a 95 per cent increase in net profits to $981 million in the April to June quarter, relative to the $504 million for the said quarter last year,” Small-Ferguson pointed out.

At the end of the nine months the net profit was $2.9 billion.

Small-Ferguson said much of the earnings came as the market settled down after a series of interest rate hikes.

“From our side, our trading strategy has benefited from just the absence of a consistent set of increases [in interest rates] that one would have seen in previous quarters and we are now seeing a return in terms of some of these revenues.”

But with interest rates stabilising over the last few quarters and falling in some segments of the market before the BOJ rate cut, he said now it’s just about adopting a strategy to fit the circumstance.

“We’ve gone through a declining rate cycle before in the recent past, and securities dealers and other financial institutions benefited significantly from that,” Small-Ferguson acknowledged.

The declining rate cycle he refers to is the 10-year period between June 2009 to July 2019 over which Bank of Jamaica cut its policy rate from the 17 per cent 0.5 per cent. It remained at 0.5 per cent for just under two years before recent price pressures during the COVID-19 pandemic forced the central bank to start raising rates in October 2021. Those rates were driven up quickly to seven per cent in the space of a year, and are being cut for the first time in almost two years.

For Barita, the future strategy will largely follow the plans laid down in the last few months.

“We are very focused on diversifying our revenues with a view of further enhancing resilience,” Small-Ferguson added.

“We are seeking to enhance the areas of our revenues that are programmatic in nature, that are recurring, that are effectively very predictable — and that strategy has been working very well.”

Those revenues include net interest income which reached $479 million in the first nine months of its current financial year, fees and commissions which earned the company $2.9 billion over the same period. Both were up 13 per cent and six per cent, respectively.

Small-Ferguson said the capital base the company has built up over the last few years with fairly low levels of debt “gives financial flexibility to take advantage of any opportunities that come up, whether in equity or fixed income or wherever the opportunities may be”. Barita has $36.19 billion in total equity/capital.

And he is also betting on a group restructuring in which “centres of excellence” are created, essentially concentrating work in areas that are best suited for it across the group, to save money.

Barita is currently undergoing a reorganisation into a financial holding company to be called Barita Financial Group, with subsidiaries including Barita Investments, Cornerstone Trust & Merchant Bank and Clarien Bank
, the Bermuda-based financial entity in which it is set to acquire a 71.1 per cent stake.

The reorganisation comes as the company just declared a dividend of $1.967 cents per stock for a total payout of $2.40 billion set to be executed on October 31 to shareholders on record as of October 17. Cornerstone Financial Holdings is set to receive $1.81 billion (US$11.45 million), with First Citizens Investment Services Limited to receive $178.10 million (US$1.13 million).

Small-Ferguson said now the company is consolidating for growth and in future quarters will look to consolidate elements of the operations in the group if the opportunities present themselves, though he declined to elaborate further on what the statement meant.

But he noted: “As much as is allowed by the requisite regulatory strictures, we want to collaborate across our financial services group once it is formed.”

He commended the efforts of the team at Barita Investments, saying they are the ones who pulled out all the stops in applying their ingenuity and experience, and “in some cases they have ran harder than before to get some mission-critical stuff that helps the financials”.