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When I took over as Managing Director of FINSAC in March 1998, the new board and I were acutely aware of the enormity of the tasks that faced our organisation. With only a year’s experience to draw on, we needed to make a massive shift in focus. Our financial sector Intervention was virtually complete. What we now had to deal with were the more complex and challenging phases of our activities - Rehabilitation and Divestment. Conscious of our need to take stock, we considered two key questions:

• How could FINSAC, as an institution, maximise the value of government’s investment in Intervention? 

• How could we ensure that the new financial sector that we were planning to build, would be sustainable?

We realised that there was no need to re-invent the wheel. Other countries had weathered crises in their financial sectors, and had needed to work through similar problems. We decided that we should tap in to their experience, and apply the lessons learned to our own special challenges. Accordingly we invited proposals from a number of international consulting companies who had worked with other countries in similar circumstances, and after assessing these, we commissioned McKinsey & Company to undertake a full diagnostic study of the Jamaican situation, and to work with us to chart a way forward. The diagnostic study was a joint McKinsey/ FINSAC effort. Cross-functional teams, consisting of their internationally experienced consultants working with our local experts, looked at the different approaches that had been tried by other countries in all the relevant areas of activity that FINSAC needed to embark on. After five weeks, we had the framework of a plan. It pointed the way for us to resolve the many problems of the financial institutions now under FINSAC’s control. 

It considered the various options for the banking sector, and the special problems of the insurance sector. It also stressed the urgency of setting up a Non Performing Loans Unit, and the need for special attention to be paid to maintaining the intervened institutions’ liquidity, whilst at the same time planning regulatory reform and a new legislative framework for the whole financial sector. Of course, considerable further analysis needed to be done, but at last we felt ourselves to be on firm ground with solidly based, tried and tested strategies in view that could enable us to successfully fulfill our mandate to rebuild a sustainable financial sector for Jamaica over the next five years or so. Some important macro-economic issues critical to the rehabilitation process still needed to be resolved. 

There were, and there still are, debt management challenges facing FINSAC and the country, as well as continuing underlying liquidity issues within the financial sector. Alongside the regulatory needs were the more pressing Year 2000 compliance issues within the institutions under FINSAC’s control. With these priorities in mind, many developments took place during the last five months of 1998, in keeping with our changing role. Central to everything was the need for a new FINSAC organisation to enable us to manage and administer the various aspects of our Rehabilitation and Divestment activities. After a thorough evaluation, and again working with internationally experienced consultants, a new internal departmental structure has now been put in place, with our key work-stream areas each being run by a General Manager. 

The preceding Chairman’s Remarks have already set out a short-list, of the major accomplishments of the new FINSAC, and much more detailed information is contained in the departmental sections which follow in this Annual Report. I would simply like to stress here that the new structures we are currently in the process of implementing in the banking and insurance sectors were not lightly decided upon. Consolidation of the commercial banks under our control into a single Union Bank, with outside consultants handling the one year transition to privatisation, was only one of the strategies considered by the McKinsey/ FINSAC teams. A comprehensively planned rehabilitation approach for each individual bank was also studied. Similarly in the insurance area, we considered and evaluated a number of options to rationalise the assets and liabilities we had taken on including mergers of like portfolios. In each case consolidation came out as the best solution, when examined against the two key criteria of maximising value and sustainability that I have referred to earlier. But flexibility was always built into our plans, so that we could respond to changing situations should we need to, as became the case when we received so much industry interest in our insurance policy assets. 

Maximising value is also the key criteria against which our Asset Management and Divestment operational decisions are measured, and it underpins our strategy of incentive-driven compensation packages for our specialists in the Non Performing Loans area. Looking back on the year, FINSAC has undergone a significant transition and has now entered a new era of its life. Working in partnership with internationally experienced consultants, we identified and implemented the key strategies and work streams that will see us through to the successful completion of our mandate. The new FINSAC we have built has the expertise and strength to move forward into a phase of accelerated divestment of our assets, and to assist Jamaica in entering a new economic era with a strong, stable and well regulated financial sector as its foundation.

Patrick Hylton
Managing Director, FINSAC