A.    INTRODUCTION

I have invited members of the media to join us here this morning to update you on the activities of the Government in its efforts to reorganize the financial sector following its intervention in the sector.  As you are aware Government's involvement in the sector is in three phases with some overlapping in the second and third phases.  The phases are intervention, rehabilitation/restructuring and divestment.

B.    INTERVENTION PHASE

In the first phase, the Government intervened in a number of institutions which were experiencing severe financial difficulties. FINSAC was established to intervene in these institutions, either through outright acquisition, injection of capital through preference or ordinary shares or the payoff of deposit liabilities through new deposit accounts. 

These interventions have to date cost a total of $73.5 billion in gross terms.

The intervention phase has largely been completed and FINSAC now has a block of equity in four of the island's nine commercial banks and five of the 12 life insurance companies, a portfolio of real estate and a portfolio of non-performing loans.

C.    REHABILITATION/RESTRUCTURING AND DIVESTMENT PHASE

FINSAC is now in the second and third phases and we are here today to update you on its activities so far. Before doing so, however, I wish to just indicate what our objectives are during this phase:

1.           To restructure the sector to ensure that it is better capitalized, better supervised and guided with better management capability;

2.   To dispose of the assets in an orderly manner; and

3.   To manage the debt which has been acquired in a judicious manner.

1.   Consolidation of Insurance and Commercial Bank Holdings

Given that FINSAC now controls a number of institutions, the opportunity is being taken to reorganize the financial sector in a manner which will:

(I)       lower the number of entities in the sector;

(ii)      reduce the opportunity for regulatory arbitrage;

(iii)     ensure adequate supervisory framework of all institutions;

(iv)      ensure that the sector is year 2000 compliant;

(v)            reduce operating costs.

It has been decided that the banks under FINSAC's control be merged, rehabilitated and divested.  As a first step, a holding company will be established for banks and a similar approach to the smaller life insurance companies is being considered. The bank holding company will comprise the following institutions: Citizens Bank/Horizon, Eagle Commercial Bank, Island Victoria Bank and Workers Bank.  The holding company's management team will directly oversee the key functions of the institutions.  FINSAC is presently undertaking a local and international search for senior level personnel who are highly experienced in the successful management of financial institutions to head the holding company. Among their tasks will be to improve performance and capture synergies in specific business areas.  All the deposit liabilities along with the assets of the banks will form the new bank holding company, while FINSAC will retain the bad assets prior to divestment of the new bank in the future.

There will be no noticeable change in the day to day operations of entities under the control of the holding companies. The approach which we will embark on will achieve greater efficiencies in the allocation of human and financial resources, eliminate duplication and create the critical mass to improve profitability.  An additional benefit is that it will create common technology, which is vital in view of the Year 2000 challenges facing the institutions.  In this regard FINSAC has engaged the services of CITIL, a subsidiary of Citicorp to work with the management of the bank holding company to ensure Year 2000 compliance.

2.    Disposal of Assets

Many of you will recall the rigorous criteria which I indicated in my Budget Presentation in April that prospective purchasers of FINSAC assets would have to meet.

1.      They must have "deep pockets"

2.   They must have the requisite management skills; and

3.   They must meet the stringent "fit and proper" criteria.

I am pleased to announce that a decision has been reached to dispose of the following assets:

1.           Eagle Unit Trust Management Company Ltd. will be sold to Pansep, which was the highest bidder at $121.3 million. Pansep is a joint venture between Pan Jamaica Investment Trust Ltd. and Seprod Ltd.

2.           First Equity Corporation, a small brokerage firm in Florida which was a subsidiary of Eagle Merchant Bank, has been sold for US$l million.

3.           Financial Institutions Services Ltd., the sister company of FINSAC, has sold its rights in Blue Cross of Jamaica for US$3 million to Independence Holdings Inc., a subsidiary of International Blue Cross of America.

In addition to the foregoing, a number of sales have been going on through the institutions which FINSAC took over.  For example, NCB has sold the Wyndham as part of a move to return to its core business, which was part of the conditionality of FINSAC assistance.  Also, Mutual Life has sold the old Courtleigh Hotel.

FINSAC is continuing its divestment programme.  Negotiations are advanced for the sale of Citizens Bank shares in its Guyana subsidiary; and also for the divestment of Crown Eagle's 20% holdings in' the Caribbean Cement Company. Criticisms have been leveled at FINSAC for the slow pace with which assets are being divested.

I must reiterate that the process is a complex one, requiring time to untangle the intricate web of ownership and management structures in some cases.  For example, six of the eleven hotels in which FINSAC has acquired interests cannot be sold until outstanding issues with respect to ownership are resolved.

In the meanwhile, the hotels have been valued by Deloitte and Touche, recognized experts in resort property valuation, under a project jointly funded by FINSAC and the Inter American Development Bank.  Property profiles have been distributed to hotel brokers and resort property owners, some of whom have expressed an interest in bidding on the hotels.

I wish to assure you that FINSAC will develop transparent divestment criteria and procedures, and launch an aggressive and highly structured divestment programme for the hotels.

3.    Management of the Debt Portfolio

Through its intervention, FINSAC acquired $20 billion of non-performing loans, which represents a major portion of its investment to date.  Recovery of these debts is one of the challenges facing FINSAC.  Its strategy to collect non-performing loans is to centralize collections through two wholly-owned subsidiaries of FINSAC - Refin Trust and Recon Trust Limited. Since October 1997, loans collected between FINSAC-intervened institutions and FIS have yielded some $1.2 billion.  We will continue to pursue collection efforts aggressively and restructure, particularly for the productive sector, where such opportunities exist, in keeping with the initiative recently announced by the Prime Minister.

Omar Davies