RAPID revaluation of the Jamaican dollar dragged Barita Investments Limited (BIL) $13.5 million into the red during the quarter ended June 30, 2010 which reversed an $8.5 million net profit recorded during the comparative period in 2009.

“The revaluation of the Jamaican dollar vis-a-vis the USD and the euro has been the single reason for the reduction in net profit,” BIL’s managing director Ian McNaughton told the Business Observer. “The revaluation has resulted in translation losses of $58 million year to date June with the majority of this being absorbed in quarter three.”

BIL recorded $50.1 million in foreign exchange trading and translation losses for the review quarter, falling from a $10.8 million gain in the comparative period last year.

McNaughton also noted that “interest payments for preference shares Series A and B were made during the quarter” which contributed to the drop in profit.

Barita issued just under 100 million preference shares, which carried an interest payment fixed at 16.5 per cent for the first year — and variable at 1.75 per cent above the weighted average six-month treasury bill yield — on shares valued at $3 a share and another 4.54 millioin shares fixed at 12.5 per cent (zero rated tax) for the first year and set at the lower of the six-month treasury bill yield or 12 per cent, thereafter. Those shares were also issued at $3 a share.

The upshot is that even while interest rates on Government securities trail behind by at least three percentage points, Barita will have to make payments on the higher rates until next year, when the rates are adjusted down towards six-month T-bill yield, which currently are averaging at 8.73 per cent.

“Barita has never made a loss in any financial year,” McNaughton said. “The company is still profitable for current financial year to date.”

BIL recorded $19.9 million in net profit for the nine months to June 30.

He outlined that Barita is significantly more profitable on all revenue lines when compared to prior year with operational profits of $83 million versus $15 million before currency translation and taxes.

Net interest income grew from $36.5 million in the June quarter of 2009 to $60.3 million during the review period, a 39 per cent increase.

Fees and commission income increased by 29 per cent over the corresponding quarters from $8.56 million in 2009 to $12.1 million in 2010. McNaughton said this increase was as a result of the improved performance in the unit trust funds and increased equity market activity compared to prior year.

Staff costs, which held relatively constant last quarter following the consolidation of Barita Unit Trust with the Group, fell in the June 2010 quarter to $39 million from $42.3 million in the corresponding period last year. “Attrition has resulted in some staff costs reduction while we are aggressively managing our administrative costs,” McNaughton told the Business Observer.

Despite the third quarter challenges, McNaughton maintains that Barita remains “an extremely viable organisation” with capital adequacy far exceeding regulatory requirements. Barita’s risk weighted assets ratio is 46 per cent whereas the Financial Services Commission (FSC) stipulates 10 per cent. Capital base for tier 1 capital is 99 per cent versus FSC’s 50 per cent requirement.

In addition to surpassing the benchmarks, McNaughton points to “an asset liability portfolio structured to take advantage of any opportunities presented in the existing environment and a knowledgeable and committed staff” among the company’s value proposition.

Last year, Barita announced a new unit trust business and an individual retirement scheme among the additions to its portfolio of products. McNaughton said the company is still involved in the approval process with regulators to finalise the additions.