VM Wealth Management Limited is set to receive a $1.5-billion capital injection from VM Financial Group Limited (VMFG) to further strengthen its capital base as market activity continues to soften.

This $1.5 billion will be received in a class of non-redeemable, non-cumulative preference shares which will be issued to VMFG. The preference shares will have no fixed maturity date and will enhance VM Wealth’s revenue generating capacity along with pushing up its capital adequacy ratio (total regulatory capital/risk-weighted assets).

VM Wealth’s capital adequacy ratio was 14.97 per cent at the end of 2021, which was well above the Financial Service Commission’s (FSC) regulatory minimum of 10.00 per cent, but close to the early warning signal of 14.00 per cent. VM Investments Limited (VMIL), VM Wealth’s direct parent company, noted in its Q1 2022 report that it was planning to inject $600 million into VM Wealth in two tranches during the year.

The broker dealer received $900 million in fresh capital in 2022 from VMIL whose interest increased to $1.01 billion in the subsidiary. This also helped in pushing its capital adequacy ratio to 17.59 per cent.

VM Wealth’s capital adequacy ratio was 17.44 per cent at the end of March with VMIL’s third quarter report noting that the VM Wealth’s capital adequacy ratio would improve from 18 per cent to 24 per cent after the issuance of the preference shares.

VM Wealth’s capital injection comes at a time when other financial companies have been receiving capital injections from their parent companies. NCB Jamaica received $9.77 billion from its parent company in its third quarter; the JN Financial Group injected $11.22 billion in its latest financial year which included $7 billion to JN Bank Limited; Scotiabank Jamaica injected $2.5 billion into its insurance subsidiary and JMMB Bank (Jamaica) is set to receive another capital injection according to its former Group Chief Risk Officer Dereck Rajack.

VMIL’s third quarter report revealed that while its interest income increased 38 per cent to $466.61 million, its net interest income contracted by a quarter to $38.79 million. Despite this contraction, gains from investment activities and stable line items resulted in its net operating revenue rising 19 per cent to $548.39 million. Lower staff costs, an impairment credit and a contribution from its 23 per cent associate stake in Kingston Properties Limited pushed its profit before tax up 87 per cent to $244.47 million. Net profit jumped 76 per cent to $156.47 million with earnings per share (EPS) at $0.10.

However, the nine months numbers revealed a 44 per cent cut in net profit to $190.49 million as a cut in interest income and net fees and commissions along with a rise in operating expenses dragged the financial firm’s performance. EPS declined from $0.23 to $0.13.

Total assets shrunk during the period to $28.36 billion with cash and cash equivalents at $462.13 million. Total liabilities decreased to $25.65 billion with equity facing a haircut from $3.09 billion to $2.70 billion due to rising unrealised losses on financial assets.

VMIL’s stock price closed Friday down 6.33 per cent to $2.81, a 30 per cent year to date decline with the 52-week low at $2.60, a far cry from the December 2018 IPO price of $2.45. The market capitalisation was $4.22 billion.

VMIL’s CARICRIS rating was recently upgraded to CariBBB on the regional scale and jmBBB+ and jmA- on the Jamaican scale. This is classified as ‘Adequate’ with the outlook being stable.

“On September 11, we onboarded Sean Yearwood as the country head of VMWM in Barbados. Sean will collaborate closely with Brian Frazer, deputy CEO of VMIL and VMWM, to expand the VM Group’s off-balance sheet assets under management. This addition is expected to help broaden our market reach and enhance the company’s overall performance,” VMIL added on the update regarding the acquisition of Republic Funds (Barbados) Inc.